viBni.5 
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Studies i E:j^crcises 



IN- 



ECONOniCS 



-BY- 



L. W. PARISH, A. M. 

IOWA STATE NORMAL SCHOOL,. 
CEDAR FALLS, IOWA. 



CBDAB FALLS, IOWA. 

GAZETTE BOOK AND JOB PRINTING HOUSE. 

1903, 



itadlies a 



^xerci! 



-IN- 




ONonac 



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t' 



L. W. PARISH, A. M. 

'I 

IOWA STATE NORMAL SCHOOL, 
CEDAR FALLS, IOWA. 



CEDAB FALLS, IOWA. 

GAZETTE BOOK AND JOB PRINTING HOUSE. 

1903, 



^^ 



il 



THE ■ • 
T. 

FEB la-f^OS 

Co, 

CLASS O- •^^^ 
COPY b 




Copyright 1903, 
BY L. W. PARISH 



V 



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^ 



FART fle 



EXCHANGE 

I. Exchange is trade. "An exchange involves, first a 
bargain, and secondly a double transfer of commodities. It 
resolves potential utilities into actual ones. It causes an 
article which is capable of rendering a service to actually 
render it to the user. " ^ Sometimes the goods obtained by 
the exchange are not actually handed over, but ownership in 
them is always transferred. Exchange may, then, be de- 
scribed as a transfer of ownership for a consideration. The 
consideration may be some other commodity, money, or a 
claim on some one for money or commodities. The history 
of exchange has been the story of progress in convenient 
modes of this double transfer of commodities. 

2. In this development we find three modes of exchange. 

Exchange by i. Barter. 

2. Money. 

3. Credit. 

Barter is the exchange of goods for goods; it is simple 
or primitive Exchange. At first it occurred only when men 
had a surplus of one kind of goods and lacked some other. 
When a boy swaps a jack-knife for a bow and arrow; when 
Indians trade furs for rifles, they afford us examples of 
barter. 

3. It will easily be seen that barter is full of difficulties, 
(a) If the Indian possesses furs and wants a rifle, he 

must find some one who possesses a rifle and wants furs, 
or he cannot make the trade. Dozens of people may pos- 

1. Clark's Philosophy of Wealth p. [62-63, 



6 

sess the rifle but not want the furs, or want the furs with- 
out possessing the rifle. The wants and possession must 
coincide. To secure this double coincidence of wants and 
possessions is one of the chief difiSculties of barter. 

(b) Again comes the difi&culty of making change. If two 
knives are worth one bow-and-arrcw, and I wish only one 
knife, how shall we make the change? 

(c) Still again, we know that two knives are worth one 
bow-and-arrow, three knives are worth two blankets and 
seven blankets are worth one gun. I am skilled in mak- 
ing bows and arrows, and I want a gun; how shall I 
know the value of a gun in bows and arrows? It is like 
comparing the fractions f, ^, and |, where we reduce to a 
common denominator. So in the trade we have to solve 
rather a troublesome problem. If people would only 
express the value of blankets, guns, knives, etc., in one 
thing (a common denominator of values) say in bows and 
arrows, all would be well. 

4. The need of something to provide for 

(i.) The double coincidence of wants and possessions, 
(2) The awkwardness of making change, 
(3 ) The common denominator of values, 
gave rise to the early experiments in what has been called 
the medium of exchange and the measure of values, viz: 
money. 

In early stages of trade, many difierent substances were 
used as money, viz; wheat, oxen, tobacco, wampum, cubes 
of pressed tea, etc. In the colonial days in Virginia, tobacco 
was the (;;ommon medium of exchange; while in New Eng- 
land the Indian money "wampum" was used to a great ex- 
tent in local trade. The Latin word pecunia^ which stood 
for wealth and was derived from peais, a flock or herd of 



animals, the Russian work kung which stands for both fur 
and money, and the German geld, gold, all indicate the sub- 
stances used for money by these peoples at certain stages in 
their economic growth. The introduction of metal money 
has been gradual and, with the development of civilization, 
the precious metals, gold and silver have come to be the fa- 
vorite materials used for this purpose. Coin money became 
somewhat common in England during the ninth century; 
previous to which time, the time of King Alfred (870-901 
A. D.) a large proportion, though not the whole, of English 
internal trade was carried on by barter. ^ 

5. Credit has been defined as protracted exchange, ^ in- 
asmuch as the trade is not completed until the credit paper 
is redeemed or the book- account settled. In one sense bar- 
ter alone is a direct exchange; where money or credit are 
used they are merely a means to the real end, viz: the goods 
bought with them for final consumption. For instance, I 
sell a horse for fifty dollars, not because I v/ish the money 
itself, but because I can with it secure the consumption 
goods which I really desire. As John Stuart Mill has said: 
"Money satisfies no want; its worth to anyone consists in 
its being in a convenient shape in which to receive his 
incomings of all sorts, which incomings he afterwards 
converts into the forms in which they can be useful 
to him," ^ Credit is said to have two forms, book ac- 
counts and credit paper. With the former most people are 
well acquainted through their dealings with the butcher, 
the grocer and the book store. Credit paper includes all 
kinds of written agreements to pay anything for value re- 
ceived, and its worth in exchange depends entirely on the 
probability of its being redeemed. 

1. Gibbins' Industrial History of England p 4. 

2. H. J. Davenport's Elementary Economics p 141. 

3. J. S. Mill's Political Economy Vol. 1 p 23. 



8 

6. The Essential characteristics of money are: 

(i) Intrinsic (?) value. 

(2) Indestructibility. 

(3) Divisibility. 

(4) Convenient bulk- 

(5) Steadiness of value. 

With these essentials as a basis, test the desirability of 
the following articles for use as money; wheat, cubes of tea, 
tobacco, oxen; rice, wampum, paper money, copper, iron, 
silver, gold. 

7. Intrinsic value, strictly speaking, is an impossibility, 
since value depends on the changing desires of human be- 
ing and the fluctuating quantity of the goods. Still some 
things are practically always acceptable in civilized commu- 
nities, and a man with gold in his pocket can nearly always 
secure, in exchange for it, such goods as he desires. Is this 
equally true of all the materials that have been used as 
money? 

8. Money should be durable and not easily destroyed. 
Its perishable nature is one of the bad characteristics of 
paper money. Wheat had many good points, but was sub- 
ject to damage by decay and by rats and other vermin. 
Oxen and other cattle deteriorated in value through under- 
feeding or disease; and gold money, with all its advantages 
is easily worn down bj^ usage until its purchasing power 
is seriously reduced, and it must be returned to the mints 
and be melted and recoined. 

9. The divisibility of the material of which money is 
made, secures to us the advantage of small change, and the 
consequent ability to pay precisely the price asked by the 
market for the goods we wish. A man rich in oxen would, 
perhaps, have much difficulty in buying (except on credit) 
articles of small value. 



9 

10. Convenience of bulk really requires three kinds of 
money if not four, viz: gold and paper money for large pur- 
chases; silver for smaller purchases (for which reason it is 
often called the poor man's money) and nickel or copper for 
making exact change, 

11. Steadiness of value is an important quality in money. 
Without it wages, salaries, and prices of commodities gener- 
ally would require frequent changing to fit the varying 
value of the medium of exchange. The very uncertain 
value of paper money in the days of "wild cat" banking 
was extremely annoying, and sometimes quite disastrous to 
traders passing from one community or State to another. 

12. We find that money has four functions, (i) facilitat- 
ing exchange, (2) serving as a measure of values, (3) afford- 
ing a standard for deferred payments, and (4) actiag as a 
storage of value. ^ The first two are familiar to all in our 
everyday business. The fourth is experienced by those 
who save money for the future enjoyment of the goods it 
will purchase. The subject of deferred payments will be 
considered in another place. (§14) 

13. "Money is best defined as athmg which, by common 
consent of the business community, is used as the basis of 
commercial obligations." 2 Mr. Walker says: "That which 
does the money work is the money thing." ^ Other and 
more elaborate definitions have been given; but these two 
with the old definition implied in section 4 will sufl&ce for 
our present use. 

1. Ely's OuHines of Economics p 141, and Davenport's Elementary Econom- 

ics, p 142. 

2. Hadley's Economics, p 180. 

3. Walker's Advanced Political Economy, p 123. 



10 

14 It will readily be seen that variation in the purchas- 
ing power of money is a great inconvenience, and may prove 
even disastrous. If you lend five hundred dollars, and by 

the time the note is due, prices have risen so that you can 
purchase only half or or three-fourths as much with the five 
hundred dollars as you could when you lent it, yoix feel that 
you are not getting an equivalent. On the other hand, if 
your debtor finds prices so low that he must raise twice as 
much grain as before in order to pay the debt, he feels ag- 
grieved, This, indeed, was the complaint of the farmers 
during the free silver campaign of 1896, and it was an argu- 
ment which appealed very strongly to this class of voters. 
It is evident that a rise in the value of money results in a 
disadvantage to debtors and a fall in its purchasing power is 
equally injurious to the creditors. Ail kinds of money are 
more or less variable in their purchasing power, and it has 
been proposed that debts be settled on the basis of the ratios 
of prices at different times. 

15. The plan is called, a Tabular Standard for Deferred 
Payments and its nature may be better understood by a study 
of the following table and exercise: 



QUESTIONS ON TABl^E. 

1. Is a man's prosperitj'- to be measured by the money he 
has or by the goods he is able to enjoy? 

2. Supposing the fifteen articles in the Tabular Standard 
fairly to represent the necessaries and comforts of life, 
would a man be better off on the same salary in 1875 
or in 1881? 

3. How much money in 1882 was an equivalent for $800 
in 1873? 



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12 

4- If my salary in 1874 was 1 1600, and in 1879 it was re- 
duced to 11500, was my salary increased or dimin- 
ished, and how much? 

5. Nominal wages of certain laborers were $2.50 in 1878, 
and in 1879 they were $2 35 were the real wages high- 
er or lower? 

6. My salary in 1873 ^^s I1500; in 1840 it was I1400; 
was the salary really larger or smaller, considering the 
expense of living? What was the per cent, of dififer- 
ence? 

7. If I received $500 worth of goods in 1878, at what cost 
could I purchase a similar quantity of goods to pay the 
debt in 188 i? 

8. If I borrowed S2000 in 1876, what amount of money 
would settle the debt with justice to both parties in 
1881? 

9. Borrowed $5000 in 1875; by the Tabular Standard, 
what should I pay to satisfy the claim in 1878, no con- 
sideration being taken of interest? 

10. Bosto?i, Mass ^ June /, 18'jg. 

Three yeajs from date, without grace, I pi07nise to pay 
Johti Doe^ or order, the tabular equivalent of $^000, 
with interest at 1 pe} cent , payable annually by the same 
tabular standard of equivalence, lvalue received. 

JOHN ROE. 
Estimate the interest for each year and the final value 
of the principal June i. 1902. 
16. The term money is used at different times in differ- 
ent senses, which gives rise to confusion in the everyday dis- 
cussions of the money question. Statements which are true 
under one conception are not necessarily true under another. 
The three uses of the word are (i) the popular. (2) the 
legal, (3) and the economic. 



13 
1 7- Currency is the proper term for money in the popular 
use of the word, and it stands for whatever passes ireely 
from hand to hand as a medium of exchange, and is gener- 
ally accepted in final discharge of debts." ^ This corres- 
ponds closely with the broad definition of money as quoted 
from Prof Hadley in section 13. 

18. What the law declares a legal tender is money in 
the legal sense, A legal tender is that which the law com- 
pels persons to receive in payment of debt. 

19. Economic money must have a market value as a 
commodity, equal to its face value as coin, and it must per- 
form all the functions of money as mentioned in section 12. 

20. Money is often spoken of as coin or metal money 
and paper money. The coins of the United States are of 
three kinds, gold, silver and copper or nickel. The silver 
coins of less value than one dollar are called subsidiary 
coins; and the copper and nickel pieces are called minor 
coins. Under a subsequent section we shall consider the 
legal tender value of each. 

21. There has been for some time a discussion as to 
whether money should be made of one metal , gold , or whether 
both gold and silver should be coined as money at a fixed 
ratio of values. The bi-metallists claim that by legally fix- 
ing the value of gold at 16 to i, sixteen ounces of silver 
being equal to one of gold, and making the silver coins six- 
teen times as heavy as the gold coins of the same value, a 
constant ratio can be maintained between these metals and 
many great advantages will follow. The mono-metallists 
claim that value is a matter of supply and demand and 
cannot be determined by the government. 

1. Ely's Outlines of Economics p. 140. 



14 

22. They quote Gresham's Law, that the poor money- 
drives the good money out of circulation, and show 
by history that this has always been true, and therefore that 
we should use only one metal, gold, for money^ and make 
all our silver money, like the English silver money, receiv- 
able in payment of debts only in limited amounts. The 
question is too large for discussion here, but a table 
of American coinage will be given and an exercise on the 
same to bring out the leading facts of the coinage laws of 
the United States. 

23. As a result of investigation and recommendations by 
Robert Morris, Thomas Jeflferson and Alexander Hamilton, 
resolutions were passed by the Continental Congress in 1785. 
and 1786 which led to the coinage laws of 1792. The 
changes in the coinage of the Uuited States since then are 
recorded in the following table: 



QUESTIONS ON TABLE OF COINAGE LAWS. 

GOLD COINS. 

24. Answer the fjjlowing questions by study of the- 
table on page 15 

1. Can you gather, from the above table and your general 
information, in what denominations gold has been 
coined in this country? 

2. Which of these were authorized by the act of 1792? 

3. When was the gold dollar first authorized? 

4. When was it abolished? 

5. Answer the same questions concerning the three dollar 
gold piece. 



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16 

6. When was the double eagle authorized? 

7. Is it still coined? 

8. When was the trade dollar authorized? 

9. In what quantities and for what period was it a legal 
tender? 

10. What was the ratio of pure gold to alloy in the first 
coins? 

11. When was the first change in the gold coinage made? 

12. Did it increase or diminish the amount of gold in the 
pieces? 

13. Did it make the fineyiess of the metal greater or less? 

14. When was the next change made in the gold coin, and 
what was its nature? 

15. What was the real object of so slight a change? 

16. What was the ratio of pure gold to alloy by the law of 
1837? 

17. Has it ever been changed? 

SILVER COINS. 

18. When was the first change made in the silver money 
of the United States? 

19. Did it eflf<.ct the amount of pure silver in a dollar? 

20. What was the full weight of the dollar by the law of 
1792? 

21. What has it been since 1837? 

22. How much pure silver was there in the original silver 
dollar? 

23 Has this amount ever been changed? 

24. What do you understand by subsidiary silver? 



17 
25- Did two half dollars, or four quarter dollars have as 
much pure silver in them as a dollar by the law of 
1792? 

26. Did the law of 1837 change the condition? 

27. When was the relative amount of silver in the subsid- 
iary coins reduced ? 

28. Can you think of a reason for this? See questions 43-52. 

29. At what dates have changes been made in the fineness 
of metal in the subsidiary coins? 

30. At what dates has the amount of pure silver in the sub- 
sidiary coins been changed? 

31. Has this ever been done without altering ratio of silver 
to alloy? 

32. What is the present ratio of silver to alloy in subsid- 
iary coins? 

33. What do you understand by "minor coins?" 

34. If a man owed $1000 in 1792 could he require his 
creditor to receive 100 gold eagles in payment of the 
debt? 

35. What limit was placed on the amount of a debt that 
could be paid in gold? 

36. Has this ever been changed? 

37. Was there any limit to the amount of silver money that 
a creditor must receive in payment of a debt by the law 
ot 1792? 

38. Were subsidiary (fractional) silver coins legal tender 
for all amounts by the law of 1792?-^ 

39. Trace, by dates and nature of the changes in ^' legal 
tender"' qMSihty, the history of the standard silver 
dollar. 

40. What do you understand by the "gold clause ?2 

1. See Coin age Law of 1792, Sec. 16 p. 24 

2. See Coinage Law of 1878, Sec. l. p. 34 



18 

41. Trace the history of subsidiary silver in regard to its 
legal teJider quality. 

42. How many silver dollars was a gold eagle wprth in 
1792, viewing both as money? 

43. How many silver dollars (sold by weight) could you 
buy in the market for one eagle? 

44. Was gold worth more in the market or as money at 
that time? 

45. How then would it be used? 

46. With what money would purchases be made? 

47. Would silver be melted and sold as bullion under 
these circumstances? 

48. How long did this state of things continue? 

49. What kind of money was the practical measure of 
values from 1792 to 1834? 

50. Which had the greatest market value for the same face 
value after 1834, at least for a number of years? 

51. How long did this continue? 

52. What kind of money was the practical measure of 
values during this time, at least till the war of 1861? 

53. What money was the every-day measure of values for 
a number of years after the beginning of the war of the 
Rebellion? 

54. How do you account for this? 

55. How large a debt can you pay with silver dollars to 
day — provided you have the dollars? 

56. How large a debt can you pay in gold? 

57. How large a debt can you pay in halves, quarters and 
I en cent pieces? 

58. Can you require your creditor to receive "trade dol- 
lars" in payment of a debt? 



19 
59- As bullion, which is the more valuable, a standard dol- 
lar or a trade dollar? Why? 

60. In what year was the standard silver dollar demone- 
tized? See definition of demonetize, and then read the 

lyaw of 1873, Sec. 15, See p. 31. 

61. What was the effect, on the standard dollar, of th6 
Law of 1874, Sec. 3586? See p. 33. 

62. When and how was this effect removed? See the Law of 
1878, Sec. I, p. 34. 

63. Find the value of a silver dollar in gold for each of 
the years mentioned in the Table. 

64. Find the value of a gold dollar in silver for each of the 
years in the Table. 

25. The political money or paper money issued by the 
government at present comprises 

1. United States Treasury notes (Greenbacks) which 
are promises to pay, and are legal tender for 
all debts public and private except duties and 
interest on the public debt. They are credit paper 

2. United States notes issued under the Law of 1890 
which are legal tender for all debts public and 
private except as indicated in section 3588 of the 
Rev. Stat. Sec. 2 of Law of 1890.^ 

3. Silver and Gold certificates which are certificates 
of deposit of so much silver or gold in the U. S. 
Treasury. They are not legal tender but are 
receivable in payment of government dues of all 
kinds. 

National Bank notes are not strictly U. S. money. 
They are the promissory notes of the National 

1. See Extract from Coinage Laws, p 37 



20 
Banks and are secured by the deposit of U. S. 
bonds in the U. S. Treasury 
Exercise. — Study each kind of coin money and each 
kind of paper money and decide undei which conception of 
money each should be placed. 



COMMEKCIAL VALUE OF A SILVER DOLLAR AT VARIOUS 
QUOTATIONS. 



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$ .387 


1 .681 .526 


1 .86 1 .665 


11.04 


.f .804 


-11.22 


f .944 


.51 


.394 


.69, .534 


.87, .673 


1.05 


.812 


1.23 


.951 


.52 


,402 


.70 


.541^ 


.88 .681 


1.06 


.820 


1.24 


.959 


.53 


.410, 


.71 


.549 


.89 .688 


1.07 


.828 


1.25 


.967 


.54 


.418 


.72 


.557. 


.90 .696 


1.08 


.835 


1.26 


.975 


.55 


.425 


.73 


.565 


.911 .704 


1.09 


.843 


1.27 


.982 


.56 


.433 


.74 


.572 


.92 .712i 


1.10 


.851 


1.28 


.990 


.57 


.441 


.75 


.580 


.93 .719 


1.11 


.859 


1.29 


.998 


.58 


.449 


;76 


.588 


.94 .727 


1.12 


.866 


1.2929 


1.000 


.59 


.456 


.77 


..596 


.95 .735; 


1.13' 


.874 






.60 


.464 


.78 


.603 


.96 .742 


1.141 


.882 






.61 


.472 


.79 


.611i 


.97| .750 


1.15 


.889 






.62 


.480 


.80 


.619; 


.98 .758 


1.16 


.897 






.63 


.487, 


.81 


.626 


.99' .766 


1 17 


.905 






.64 


.495 


.82 


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1.18 


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.65 


.503 


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l.Ol' .781j 


1.19 


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.66 


.510 


.84' .650 


1.02 .789; 


1.20 


.928 






.67 


.518 


.85' -657 


1.03 .797| 


1.2ll 


.936 







The teacher should mike problems in the value of 
cubes of silver and gold, based on the data in this table and 
the specific gravities of the metals. 

N B. Remember the uses of avoirdupois and Troy 
weights. 



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22 
THE FIRST COINAGE ACT. 
1791-92, Chap. XVI. An act establishing a mint, and 
regulating the coins of the United States. 

Sec. 9. And be it further enacted, That there shall be 
from time to time struck and coined at the said mint, coins 
of gold, silver, and copper, of the following denominations, 
values, and descriptions, viz; Eagles— each to be of the 
value of ten dollars or units, and to contain two hundred 
and forty-seven grains and four-eighth of a grain of pure, or 
two hundred and seventy grains of .standard gold. Half 
Eagles — each to be of ihe value of five dollars, and to con- 
tain one hundred and twenty three grains and six eighths 
of a grain of pure, or one hundred and thirty five grains 
of standard gold. Quarter Eagles — each to be of the value 
of two dollars and a half dollar, and to contain^ sixty one 
grains and seven eighths of a grain pure, or sixty seven 
grains and four eighths of a grain standard gold. Dollars 
or Units — each to be of the value of a Spanish milled dollar, 
as the same is now current, and to contain three hundred 
and seventy-one grains and four-sixteenths parts of a grain 
of pure, or four hundred and sixteen grains of standard silver. 
Half Dollars — each to be of half the value of the 'dollar 
or unit, and to contain one hundred eighty five grains and 
ten sixteenth parts of a grain of pure, or two hundred and 
eight grains of standard silver. Quarter Dollars — each to 
be one fourth. the value of the dollar or unit ana to contain 
ninety two grains and thirteen sixteenth parts of a grain of 
pure, or one hundred and four grains of standard silver. 
Dimes — each to be of the value of one tenth of a dollar or 
unit, and to contain thirty seven grains and two sixteenth 
parts of a grain of pure, or forty one grains and three fifth 
parts of a grain of standard silver. Half Dimes — each to 



23 

be of the value of one twentieth of a dollar, and to contain 
eighteen grains and nine sixteenth parts of a grain of pure, 
or twentj?^ grains and four fifth parts of a grain of stand- 
ard silver. Cents— each to be of the value of the one hun- 
dredth part of a dollar, and to contain eleven penny- weights 
of copper. Half Cent — each to be of the value of half a cent, 
and to contain five penny-weights and half a pennyweight 
of copper. 

Sec. II. And be it further enacted, That the propor- 
tional value of gold to silver in all coins which shall by law 
be current as money within the United States, shall be as 
fifteen to one, according to quantity in weight, of pure gold 
or pure silver; that is to say, every fifteen pounds weight of 
pure silver shall be of equal value in all payments, with one 
pound weight of pure gold, and so in proportion as to any 
greater or less quantities of the respective metals. 

Sec. 12. And be it further enacted, That the standard 
for all gold coins for the United States shall be eleven parts 
fine to one part alloy; and accordingh^ that eleven parts in 
twelve in the entire weight of each of the: said coins shall 
consist of pure gold, and the remaining one-twelfth part of 
alloy; and the said alloy shall be composed of silver and 
copper, in such proportions not exceeding one-half silver as 
shall be found convenient; to be regulated by the director of 
the mint, for the time being, with the approbation of the 
President of the United States, until further provision shall 
be made by law. * _ * * * * 

Sec. 13. And be it further enacted, That the standard 
of all silver coins of the United States, shall be one thousand, 
four hundred and eighty-five parts fine to one hundred and 
seventy-nine parts alloy; and accordingly that one thousand 



24 
four hundred and eighty-five parts in one thousand, six 
hundred and sixty- four parts of the entire weight of each of 
said coins shall consist of pure silver, and the remaining one 
hundred and seventy-nine parts of alloy; which alloy shall 
be wholly of copper. 

Sec. 14. And be it further enacted, That it shall be law- 
ful for any person or persons to bring to the said mint gold 
and silver bullion, in order to their being coined; and that the 
bullion so brought shall be there assayed and coined as speed- 
ily as may be after the receipt thereof, and that free of ex- 
pense to the person or persons by whom the sime shall have 
been brought. And as soon as the said bullion shall have 
been comed, the person or persons by whom the same shall 
have been delivered, shall upon demand] receive in lieu 
thereof coins of the same species of bullion which shall have 
been so delivered, weight for weight, of the pure gold or 
pure silver therein contained; provided nevertheless, that it 
shall be at the mutual option of the party or parties bring- 
ing such bullion, and of the direction of said mint, to make 
an immediate exchange of coin for standard bullion, with a 
deduction of one-half per cent, from the weight of the pure 
gold, or pure silver contained in the said bullion, as an in- 
demnification to the mint for the time which will necessar- 
ily be required Tor coining the said bullion, and for the ad- 
vance which shall have been so made in coins. * * 
Sec. 16. And be it further enacted, that the gold and 
silver coins which shall have been struck at, and issued 
from the said mint, shall be a lawful tender in all payme?its 
whatsoever^ those of full weight according to the respective val- 
ues hereinbefore declared ayid those of less than full weight at 
values proportional to their respective weights. 



25 

Sec. 20. And be it further enacted, That the money of 
account of the United States shall be expressed in dollars or 
unites, dismes or tenths, cents or hundredths, and mills or 
thousandths, a disme being a tenth part of a dollar, a cent 
the hundredth part of a dollar, a mille the thousandth part 
of a dollar, and that all accounts in public ofl&ces, and all 
proceedings in the courts of the United States shall be 
kept and had in conformity to this regulation. 

THE LAW OF 1833. 

1833-34. Chap. xcv. An act concerning the gold coins 
of the United States, and for other purposes. 

Be it enacted. That the gold coins of the United States 
shall contain the following quantities of metal that is to 
say; each eagle shall contaiji 2^2 grains of pure gold, and 
2^8 gfains of standard gold; each half eagle 116 grains of 
pure gold, and 129 grains of standard gold; each quarter 
eagle shall contain 58 grains of puie gold, and 64^ grains of 
standard gold; every such eagle shall be of the value of $10;. 
every such half eagle shall be of the value of $5; and every 
such quarter eagle shall be of the value of I2.50; and the 
said gold coins shall be receivable in all payments when of 
full weight according to their respective values; and when 
of less than full weight, at less values, proportioned to their 
respective actual weights. 

Sec. 2. And be it further enacted. That all standard 
gold or silver deposited for coinage after the 31st of July 
next, shall be paid for in coin under the direction of the sec- 
retary of the treasury, within five days from the making of 
such deposit, deducting from tlie amount of said deposit of 
gold and silver one- half of one per centum; provided, that no 



26 
deduction shall be made unless said advance be required by 
such depositor within forty day?,. 

Sec. 3. And be it further enacted, That all gold coins 
of the United States minted anterior to the 31st day of July- 
next, shall be receivable in all payments at the rate of 94 8 of 
a cent per pennyweight. 

THE LAW OF 1837. 

Sec. 8. And be it further enacted, That the standard 
for both s;old and silver coi)is of the United States shall here- 
after be stich that of i ,000 parts by weighty goo shall be of pure 
-metal, and 100 of alloy; and the alloy of the silver coins shall 
be ol copper and the alloy of the gold coins shall be of copper 
and silver, provided that the silver do not exceed one-half 
of the whole alloy. 

Sec. 9. And be it further enacted, That of the silver 
coins the dollar shall be of the iveight of 4.12}^ grains; the 
half dollar of the weight of 206^ grains; the quarter dollar 
of the weight of 103^ grains; the dime, or tenth part of a 
dollar, of the weight of 41 J grains; and the half dime, or 
twentieth part of a dollar, of the weight of 20^ grains; and 
that dollars, half dollars and quarter dollars, dimes ajid half- 
dimes, shall be legal tenders of payvient, according to their 
nominal value, for any sums whatever. 

Sec. 10. And be it further enacted, That of the gold 
coins, the weight of the eagle shall be 258 grains; that 
of the half-eagle 129 grains; and that of the quarter-eagle 
t^Yz grains. And that for all sums whatever, the eagle 
shall be a legal tender of payment for $10; the half-eagle 
for 5^5; and the quarter-eagle for $2.50. 

Sec II. And be it further enacted. That the silver 



27 
coins heretofore issued at the mint of the United States, and 
the gold coins issued since the 31st day of July, 1834, shall 
continue to be legal tenders of payment for their nominal 
values, on the same terms as if they were of the coinage 
provided for by this act. 

(Sections 14-19 provide that the gold and silver bullion 
brought to the mint shall be received and coined for the bene- 
fit of the depositor^ and that the only subjects of charge to him 
shall be for refining, toughening , and separating , and for 
metal used as alloy, the rate of charge bein^ fixed from time 
to time so as not to exceed the actual expenses incurred. For 
the net amount of the deposit a certificate shall be given, 
payable in coins of the same metal as the deposit. Sections 
30 and 31 require that when the coins which are the equiv- 
alent to any deposit of bullion are ready for delivery they 
shall be paid over, payment being made to depositors in the 
order of priority of deposit. And, to enable the mint to 
make returns to depositors with as little delay as possible, 
it is made the duty of the secretary of the treasury to keep 
in the mint, when practicable, a deposit not exceeding 
$1,000,000, out of which the value of bullion brought to the 
mint may be paid as soon as ascertained; but no discouat or 
interest is to be charged on moneys so advanced.) 



THK GOLD DOLLAR. 1849. 

The law of March 3, 1849, authorized the coinage of 
gold dollars 2i.nd. double eagles, "conformable in all respects 
to the standard for gold coins now established by law," and 
to be a legal tender in payment for all debts. 



28 
THK LAW OF 1853. 

1852-53. Chap. LXXIX. An act amendatory of ex- 
isting laws relative to the halt dollar, quarter dollar, dime 
and half-dime. 

Be it enacted, That from and after the first da}^ of June, 
eighteen hundred and fifty-two (three) the weight of the 
half dollar or piece of fifty cents shall be 192 grains, and the 
quarter dollar, dime, and half dime, shall be, respectively; 
one half, one-fifth, and one-tenth of the weight of said half 
dollar. 

Sec. 2. And be it further enacted, That the silver coins 
issued in conformity with the above section, shall be legal 
tenders in payment of debts for all sums not exceeding $5. 
Sec. 3. And be it further enacted, that in order to procure 
bullion for the requisite coinage of the subdivisions of the 
dollar authorized by this act, the treasurer of the Mint shall, 
with the approval of the Director, purchase such bullion 
with the bullion fund of the Mint. He shall charge himself 
with the gain arising from the coinage of such bullion into 
coins of a nominal value exceeding the intrinsic value 
thereof, and shall be credited with the difference between 
such intrinsic value and the price paid for such bullion, and 
with the expense of di.stributing said coins as hereinafter 
provided. The balance to his credit, or the profit of said 
coinage, shall be, from time to time, on a warrant of the Di- 
rector of the Mint, transferred to the account of the Treas- 
ury of the United States. 

Sec. 4. And be it further enacted, that such coins shall 
be paid out at the Mint, in exchange for gold coins at par, 
in sums not less than $100; and it shall be lawful, also, to 



29 . 
transmit parcels of the same from time to time to the assis- 
tant treasurers, depositaries and other officers of the United 
States, under general regulations, proposed by the Director 
of the Mint, and approved by the Secretary of the Treasury, 
provided, however, that the amount coined into quarter dol- 
lars; dimes and half dimes, shall be regulated by the Sec- 
retary of the Treasury. 

Sec. 5. And be it further enacted, That no deposits for 
coinage into half dollar, quarter dollar, dime and half dime, 
shall hereafter be received, other than those made by the 
Treasurer of the Mint, as herein authorized, and upon ac- 
count of the United States. 

(Section 6 provides that when gold and silver is depos- 
ited for coinage there shall be a charge to the depositor in 
addition to the charge for refining or parting of metals, of 
one- half oi one per ce7itum, this provision not applying to 
silver coined in the subdivisions of the dollar. 

Sec. 7. And be it further enacted, That from time to 
time there shall be struck and coined at the Mint of the 
United States, and the branches thereof, conformably in all 
respects to law, and conformably in all respects to the stand- 
ard of gold coins now established by law, a coin of gold of the 
value of $3 or three miits. * * * Approved 
Feb. 21, 1853, 10 statutes at Large, 160. 

SII.VER DEMONKTIZED. 

Feb, 12, 1873. 

1872-73. Chap, cxxxi. An act revising and amend- 
ing the laws relative to the mints, assay offices, and coinage 
of the United States. 

Sec. 13. That the standard for both gold and silver 



30 

coins of the Uuited States shall be such that of one thousand 
parts by weight nine hundred shall be of pure metal and 
one hundred of alloy. The alloy of the silver coins shall 
be of copper and the alloy of the gold coins shall be of cop- 
per or of copper and silver, but the silver in no case shall 
exceed one-tenth of the whole alloy. 

Sec. 14. That the gold coins of the United States shall 
be a one-dollar piece, which, at the standard weight of 
twenty five and eight-tenths grains, shall be the unit of value; 
a quarter-eagle, or two-and-one-half dollar piece; a three 
dollar piece; a half eagle, or five dollar piece; an eagle, or ten 
dollar piece; and double eagle, or twenty dollar piece. And 
the standard weight of the gold dollar shall be twenty-five 
and eight-tenths grains; of the quarter eagle or two and one- 
half dollar piece, sixty- four and a half grains; of the three 
dollar piece, seventy- seven and four-tenths grains; of the 
half-eagle, or five dollar piece, one hundred and twenty-nine 
grains; of the eagle, or ten dollar piece, two hundred and 
fifty-eight grains; of the double eagle or twenty dollar piece, 
five hundred and sixteen grains; ivhich corns shall be a legal 
tender in all payraents, at their nominal value, when not be- 
low the standard weight and limit of tolera^ice, provided in 
this act for the single piece, and when reduced in weight be- 
low said standard and tolerance, shall be a legal tender at val- 
uation, in proportion to their actual weight; and any gold coin 
of the United States, if reduced in weight by natural abras- 
ion not more than one-half of one per centum below the stand- 
ard weight prescribed by law after a circulation of twenty 
years, as shown by its date of coinage, and at a ratable pro- 
portion for any period less than twenty years, shall be re- 
ceived at their nominal value by the United States Treasury 



31 

and its offices, under such regulations as the Secretary of the 
Treasury may prescribe for the protection of the government 
against fraudulent abrasion or other practices; and any gold 
coins in the treasury of the United States reduced in weight 
below this limit of abrasion shall be recoined. 

Sec, 15. That the silver coins of the United States 
Fhall be a trade dollar, a half dollar, or fifty cent piece; 
a quarter dollar, or twenty-five cent piece; 2^ dime, or ten cent 
piece; and the weight of the trade dollar shall be four hun- 
dred and twenty grains Troy; the weight of the half dollar 
shall be twelve gram (grammes) and one-half of a gram 
(gramme); the quarter dollar and the dime shall be respec- 
tively one-half and one- fifth of the weight of said half dol- 
lar; and said coins shall be legal tender at their nominal value 
for any amount not exceeding Hve dollars in any one pay- 
ment. 

(The standard silver dollar was omitted from the list 
given in section 15. It was claimed that this was done by 
fraud. This was the so called crime of 1873.) 

Sec. 16. That the minor coins of the United States 
shall be a 5-cent piece,' a 3- cent piece, and a i-cent piece. 
The alloy for the 5 and 3-cent pieces shall be of copper and 
nickel, to be composed of three- fourths copper and one-fourth 
nickel. The alloy of the i -cent piece shall be 95 per centum 
of copper and 5 per centum of tin and zinc, in such propor- 
tions as shall be determined by the Director of the Mint. 
The weight of the piece of 5 cents shall be seventy-seven 
and sixteen hundreds grains troy; of the 3-cent piece, thirty 
grains; and of the i-cent piece, forty eight grains; which 
coins shall be a legal tender at their nominal value for any 
amount not exceeding 2^ cents in any one payment. 



32 
Sec. 17. That «^ <:^m.?, either of gold, silver or minor 
coinage, shall hereafter be issued from the mint other than 
those of the denominations, standards, and weights herein set 
forth. 

TRADE DOLLARS. 

Sec. 21. That any owner of silver bullion may deposit 
the same at any mint, to be formed into bars, or into dollars 
of the weight of ^20 grains troy, designated in this act as 
trade dollars; and no deposit of silver for other coinage shall 
"be received; but silver bullion contained in gold deposits, 
and separated therefrom, may, however, be paid for in sil- 
ver coin, at such valuations as may be, from time to time, 
established by the Director of the Mint. 

Sec. 25. That the charge for converting standard gold 
bullion into coin shall be one-fifth of i per centum. The 
charges for converting standard silver into trade dollars, 
for melting and refining when bullion is below standard, 
for toughening when metals are contained in it which render 
it unfit for coinage, for copper used for alloy when the bul- 
lion is above standard, for separating the gold and silver 
when these metals exist together in the bullion, and for the 
preparation of bars, shall be fixed from time to time, by the 
Director, with the concurrence of the secretary of the treas- 
ury, so as to equal but not exceed, in their judgment, the 
actual average cost to each mint and assay oflBce of the ma- 
terial, labor, wastage and use of machinery employed in 
each of the cases aforementioned. 

THE LAW OF 1874. 

Jan. 29, 1874. Revised statutes of the United States; 
title xxxix, legal tender. 



33 

Sec. 3,584. No foreign gold or silver coins shall be a 
legal tender in payment of debts. 

Sec. 3,585. The gold coins of the United States shall 
be a legal tender in all payments at their nominal value 
when not below the standard weight and limit of tolerence 
provided by law for the single piece, and, when reduced in 
weight below such standard and tolerence, shall be a legal 
tender at valuation, in proportion to their actual weight. 

Sec. 3,586. The silver coins of the United States shall 
he a legal tender at their nominal value foi' any amount not 
exceeding five dollars in any one payment. 

Approved June 22, 1874. Revised Statutes 712. 

Note. An act of June 22, 1874, authorizes the Secre- 
tary of the Treasury to exchange gold mint bars for coin 
certificates or gold coins at not less than par nor less than 
market value. 

THE LAW OF 1875. 

Jan. 14, 1875. Chapter xv. An act to provide for 
the resumption of specie payments. 

Sec. I . Be it enacted. That the Secretary of the Treas- 
ury is hereby authorized and required, as rapidly as practic- 
able, to cause to be coined, at the mints of the United States, 
silver coins of the denominations of 10, 25 and 50 cents, of 
standard value, and to issue them iu redemption of an equal 
number and amount of fractional currency of similar denom- 
inotions, or, at his discretion, he may issue such silver coins 
through the mints, the subtreasuries, public depositaries, and 
postoffices of the United States; and, upon such issue, he is 
hereby authorized and required to redeem an equal amount 
of such fractional currency, until the whole amount of such 
fractional currency outstanding shall be redeemed. 



34 

Sec 2. That so much of section 3,524 of the revised 
statutes of the United states as provides for a charge of one- 
-fifth of one ])er centum for converting standard gold bullion 
i?ito coin is hereby repealed; and hereafter no charge shall be 
made for that service. 

THE LAW OF 1878. 

Feb. 28, 1878. Chapter XX. An act to authorize the 
coinage of the standard silver dollar, and to restore its legal 
tender character. 

Sec. I. Be it enacted That there shall be coined, at the 
several mints of the United States, silver dollars of the loeight 
of four hundred tioelve and one- half grains troy of standard 
silver., as provided in the act of Jan 18, 1837, on which shall 
be the devices and superscriptions provided by said act; 
which coins together toith all silver dollars heretofore coined 
by the United States, of like iceiyht and ^fineness, shall be a 
legal tender at their nominal value, for all debts and dues 
public and private, except where otherioise stipulated in the 
contract And the Secretary of the Treasury is authorized 
and directed to purchase from time to time silver bullion at 
the mar'ket price thereof., not less than $2,000,000 
worth per month,nor more than $^,ooo.,ooo worth per month, 
and cause the same to be coined monthly, as fast ?.s so pur- 
chased, into such dollars; and a sum sufficient to carry out 
the foregoing provision of this act is hereby appropriated out 
of any money in the treasury not otherwise appropriated. 
And any gain or seigniorage arising from this coinage shall 
be accounted for and paid itito the Treasury, as provided under 
existing laws relative to the subsidary coinage; provided, 
that the amount of money at any one time invested in such 
silver bullion, exclusive of such resulting coin, shall not ex- 



35 

ceed $5,000,000. And, provided, further, that nothing in 
this avt shall he construed to authorize the payment in silver 
of certificates of deposit issued under the provisions of section 
254 of the Revised Statutes. 

Sec. 2. That immediately after the passage of this act 
the president shall invite the governments of the countries 
composing the I,atin Union, so-called, and of such other 
European nations as he may deem advisable, to join the 
United States m a conference to adopt a common ratio between 
gold and silver, for the purpose of establishing, international- 
ly, .the use of bimetallic money, and securing fixity of rela- 
tive value between those metals; such conference to be held 
at such place, in Europe or the United States, at such time 
within six months, as may be mutually agreed upon by the 
Executives of the governments joining in the same, when- 
ever the governments so invited, or any three of them shall 
have signified their willingness to unite in the same. 

The President shall, by and with the advice and consent 
of the senate, appoint three commissioners, who shall at- 
tend such conference on behalf of the United States, and 
shall report the doings thereof to the President, who shall 
transmit the same to congress. 

Said commisioners shall receive $2,500 and their reas- 
onable expenses, to be approved by the Secretary of State; 
and the amount necessary to pay such compensation and ex- 
pense is hereby appropriated out of any money in the Treas- 
ury not otherwise appropriated. 

Sec. 3. That any holder of the coin authorized by this 
act may deposit the same with the Treasurer or any assistant 
treasurer of the United States, in sums not less than $10 



36 

and receive therefor certificates of not less than 3io each, 
corresponding with the denominations of the United States 
notes. The coin deposited for or representing^ the certifi- 
cates shall be retained in the Treasury for the payment of the 
same on demand, ouch certificates shall be receivable for 
customs, taxes, and all public dues, and when so received, 
may be reissued. 

Sec 4. All acts and parts of acts inconsistant with the 
provisions of this act are hereby repealed. 

(Note. The above act having been returned by the 
president of the United States with his objections to the 
house of representatives, Feb, 28, 187/8, was passed by both 
houses and became a law on the same day.) 

the: LAVv^ of 1890. 

July 14, 1890. Chapter DCCVIII. An act directing the 
purchase of silver bullion and the issue of Treasury notes 
thereon and for other purposes. 

Be it enacted, That the Secretary of the Treasury is 
hereby directed to purchase from time to lime silver bullion 
to the 0(jgre<jate amount of 4,500 fiOO ounces, or so much 
thereof as may be ojfered iu each mouthy at the viarJcet price 
thereof not exceeding $1 for 371 25 grains of pure silver, 
and X.O isH7(,e in payment of such purchases ol silver bullion 
Treasnry notes of the United states to be prepared by the Sec- 
retary of the Treasury in such form and in such denomina- 
tion, not less than %i nor more than $1,000, as he may pre- 
scribe, and a sum sufiicient to carry into effect the provisions 
of this act is hereby appropriated out of any money in the 
Treasury not otherwise appropriated. 

Sec. 2. That the Treasury notes issued in accordance 
with the provisions of this act shall be redeemable on demand. 



37 

in coin, at the Treasury of the United States, or at the oflSce 
of any assistant treasurer of the United States, and when so 
redeemed may be reissued, but no greater or less amount of 
such ilotes shall be outstanding at any time than the cost of 
the silver bullion and the standard silver dollar coined there- 
from then held in the Treasury purchased by such notes, and 
such Treasury notes shall be a legal tender in pay^nent of 
all debts, piiblic and private, except where otherwise expressly 
stipulated in the contract, and shall be receivable for customs 
taxes and all public dues, and when so received may be re- 
issued; and such notes, when held by any national banking 
association may be counted as a part of its lawful reserve. 
That upon demand of the holder of any of the Treasury notes 
herein provided tor the Secretary ot the Treasury, shall, un- 
der such regulations as he may prescribe, redeem such notes 
in gold or silver coin at his discretion, it being the established 
policy of the United States to maintain the two metals on a 
parity with each other upon the present legal ratio, or such 
ratio as may be provided by law. 

Sec 3. That the secretary of the treasury shall each 
month coin 2,000,000 ounces of the silver bullion purchased 
under the provisions of this act into standar silver dollars 
until the first day of July, 1891, and ccfter that time he shall 
coin of the silver bullion purchased under the provisions of 
this act as much as may be necessary to provide for the re- 
detription of the Treasury notes\^^x€vcL provided for, and any 
gain or seigniorage arising from such coinage shall be ac- 
counted for and paid into the Treasury. 

Sec. 4. That the silver bullion purchased under the 
provisions of this act shall be subject to the requirements of 
existing law and the regulations of the mint service govern- 
ing the methods of determining the amount of pure silver 
contained, and the amount of charges or deductions, if any, 
to be made. 



38 

Sec. 5- That so much of the act of Feb. 28, 1878, en- 
titled, "An act to authorize the coinage of the standard sil- 
ver dollar, and to restore its legal tender character," as re- 
quires the monthly purchase and coinage of the same into 
silver dollars of not less than $2,000,000 nor more than 
$4,000,000 worth of silver bullion is hereby repealed. 

Approved July 14, 1890 

An act approved Sept. 26, 1890, discontinued the coin- 
age of the three-dollar and one-dollar gold pieces and three 
cent nickel pieces. 

THE LAW OF 1893. 

Nov. I, 1893: An act to repeal part ot an act, approv- 
ed July 14, 1890. 

Be it enacted. That so mtich of the act approved July 
14, 1890, entitled "An act directing the purchase of silver 
bullion and issue of Treasury notes thereon and for other 
purposes," as directs the Secretary of the Treasury to pur- 
chase from time to time silver bullion to the aggregate 
amount of 4,500,000 ounces, or so much thereof as may be 
oflfered in each month at the market price thereof, not ex- 
ceeding $\ for 371.25 grains of pure silver, and to issue in 
payment for such purchases Treasury notes of the United 
States, be and the same is hereby repealed. 

And it is hereby declared to be the policy of the United 
States to continue the use of both gold and silver as stand- 
ard money and to coin both gold and silver into money of 
equal intrinsic and exchangeable value, such equality to be 
secured through international agreement, or by such safe- 
guards of legislation as will insure the maintenance of the 
parity in value of the coins of the two metals, and the equal 
power of every dollar at all times in the markets and in the 
payment of debts. 



PART 



TUD Y 




.ta®o Pricf 



° rp=j\o rt o 



L. W. PARISH, M. A. 

PEOFESSOR OF POLITICAL SCIENCE, 

IOWA STATE NORMAL SCHOOL. 

Cedar Falls, Iowa. 



CEDAR FALLS, IOWA. 

GAZETTE BOOK AND JOB PRINTING HOUSE. 

1902, 



A Study in V^la?, Price, \Di Pistributioij 

^ It K 

The Theory of Value from the Standpoint of Supply, 
Cost to the Producer. 



SINGLE COMPETITION, DEMAND FIXED. 

THE ENGLISH VIEW. 

1. Will a man, as a rule, sell goods for less than cost? 

2. '^hat then will be any man's viinimuni selling price ? 

3. What will be his maximttni selling price ? 

In the accompanying list, let each letter stand for a 
group of producers who have the skill and business 
ability to manufacture 1000 balls at a cost per ball, in 
labor and capital, as indicated by the figures. 

A can produce 1000 balls at 15 cents each. 

B " " " " " 16 " 

C " " " " " 17 " 

D " " " " " 18 " 

E " " " " " 19 " " 

F " " . '• " " 20 " 

G " " " '• " 21 " 

H " " " '• " 22 " 



4 

4- Now which of these groups produces at the greatest ad- 
vantage ? Explain your answer. 

5. Which produces at the greatest disadvantage ? 

6. What will be the minimum selling price of A, of B, of 
E, of H? 

7. With a demand for 1000 balls, which group will furnish 
the supply ? Why 't 

8. At what price will they sell ? 

9. What would happen if they insisted on getting a cent 
more? 

10. Answer the same question with a demand for 2000 balls. 

11. With a demand for 3000 balls, what groups will furnish 

the supply ? 

12. What group will fix the price ? 
13 What will that price be ? 

14. Will not those producing at 2i greater advantage under- 

sell him ? Explain. 

15. With a demand for 7000 balls, what groups will furnish 
the supply ? 

16. With an average demand for 7000 balls each year, what 
will become of the other groups ? 

17. Under the above conditions, what will be the profits of 
each producer ? 

18. What part of the needed supply is produced at the 
greatest advantage ? 

19. What part of the needed supply is produced at the great- 
est disadvantage ? 

20. By which is the price fixed ? 

21 By what then is the normal price, (natural price under 
perfect competition) fixed ? 

N. B. Formulate a careful general statement in reply 
to this question. 



Problems Illustrating the Dependence of Price upon Cost 
of Production. 

1. There are ten men each able to produce looo ball-bats at 
a cost respectively of 6, 7, 8, 9, 10, 11, 12, 13, 14, and 
15 cents per bat. There is a demand for 6000 bats. 
Whose goods will be needed in the market, what will be 
the cost of the part of the needed supply produced at the 
greatest disadvantage, and what will be the normal 
price ? 

N. B. The man producing at the greatest disadvantage 
among those who supply the market, is on the edge 
©f being crowded out, and is called the marginal pro- 
ducer. His cost of production is the marginal cost of 
production. 

2. Under the following conditions, who is the marginal pro- 
ducer, what is the marginal cost of production, and what 

is the normal price ? 

A produces 1000 caps at 15 cents. 
B " " " " 14 " 

C " " " " 13 " 

D " " " " 12 " 

E " " " " II " 

The demand is for 4000 caps. 

3. Given a demand for 3500 tennis balls and the following 
conditions of cost of production. 

A can produce 1000 tennis balls at 18 cents each. 



B 
C 

D 
E 
F 
G 



1200 

1300 

1500 

900 

600 

500 



19 


U t' 


20 


a << 


21 


C 4' 


22 


( ( (( 


23 


" " 


n A 


( I i 



6 
Required the (a) marginal producer,(b) the excluded pro- 
ducers, (c) the marginal cost, and the (d) normal price. 

4. Five men raise grain with results as given below. The 
total cost of production to each, (in labor and capital) is 
I277.20, and the demand 10^0^ bushels. Which men 
will sell their grain, and what will be the normal price ? 

A's product was 3960 bu. 
B's " " 3465 " 
C's " " 3080 " 
D's " " 2772 " 
E's " " 2510 " 
F's " " 2143 " 

5, With a demand for ^oi'] bushels, and a total cost to each 
producer of $120. 12, required the normal price under the 
following conditions: 

A's product 277 bu. 

B's " S58 " 

C's " 924 " 

D's " looi " 

E's " 1092 " 

Utility. 

Utility is the power to satisfy a human want. It is a rel- 
ative quality depending both on the nature of the thing and 
the wants of the man. If there were no men, things would 
not be useful in the economic sense. 

Things may be useful in one community and absolutely 
useless in another, e. g. a copy of Shakespeare in London 
and in the Cannibal Islands. 

There are, then, two ways in which things may be given 
utility, viz: By affecting them in time, place or form so that 



they shall appeal to some existing desire on the part of 
man, as in the carving of a beautiful statue out of crude 
marble, or by developing in man a desire for something he 
did not appreciate. A bookseller may have a hundred 
volumes treating of ancient art, but if no one in the com- 
munity cares for that sort of study, the books have no 
utility. If now a university extension lecturer, by a series 
of talks, creates among the ladies of that town an interest 
in ancient art, the books come to have utility, and are soon 
sold by the book seller. 

Let the pupil give three or four other illustrations of crea- 
ation or development of utility. 

Absolute utility is utility in general, without regard to the 
quantity of the commodity. It is measured by the importance 
of the want which is satisfied. Thus air is one of the most 
useful things in the world, because it is necessary for the 
continuance of life. The absolute utility of food is also very 
great; so too is that of iron; for, in the form of tools and 
machinery, it is needed in the production of almost all of 
the food, clothing and shelter which we consider the neces- 
saries of life. On the other hand, gold and diamonds, 
though very valuable, have a small absolute utility, being 
largely restricted to those uses which we call luxuries. 

Make a list of ten things having small value but very 
high absolute utility. 

Make a list of ten things having a large value and small 
absolute utility. 

Do all things that are valuable have some absolute utility? 

Do all things that have absolute utility have value? Give 
examples, and explain. 

Effective utility (also called final and marginal utility) is 
utility with special regard to the quantity of the commodity 



and the present needs of the individual. The eflfective utility 
of anything depends on how much we already have of it. 
Most of our wants are quickly satisfied, and our desire for 
anything decreases in proportion to the quantity we have to 
enjoy. The first chocolate cream gives us g'-eat satisfaction 
and we are quite eager for the next, but each successive bon 
boti gives less pleasure, their eflfective utility constantly de- 
creasing until we do not care enough for the next to make 
theeflfort to pick it up, and in this^ fact we find the law of 
satiety or diminishing utility. The eflfective utility of the 
candy varies then with the quantit)-, decreases as the quan- 
tity increases, and is measured by the pleasure given by the 
latest (final) unit enjoyed. 

If the commoditj'' is capable of of several uses, we shall 
apply it to the most important use first, and if there is 
plenty of it we shall use it for less and less important pur- 
poses. Boehm Bawerk uses, as an illustration, the case of 
a man in the woods in winter time with five sacks of grain; 
the first being suflEicient for the sustaining of life during the 
winter, the second assuring plenty, the third being fed to 
chickens that he may have a variety of food, the fourth being 
made into a liquor, and the fifth being used to feed parrots 
that he may be amused by their pranks. Now if one of 
these sacks of grain were destroyed the man would have to 
give up one of the five pleasures, and he would ot course 
abandon the one that gave him the least satisfaction, viz.; 
the amusement aflforded by the parrots. If any one asked 
him to sell one of the five sacks he would ask, in exchange, 
something that would give at least as much satisfaction as the 
parrots. This would be his minimtwi selliyig price. If he 
were asked to buy another, a sixth sack of grain, he would 



9 

naturally be willing to give for that sack something which 
was, in the pleasure it gave him, equal to the utility which 
he would get out of the sixth sack of grain. In short his 
selling price would be the measure of his lowest satisfied want, 
his buying price would be the measure of his highest unsatis- 
fied want, i. e. the want to which he would apply the sixth 
sack. The lowest satisfied wa?it and the highest unsatisfied 
want are so very near together that theorists in economics 
usually consider them the same, and so — Effective (final or 
marginal) utility is meastcred by the lowest ivant satisfied by 
the available aroods. ^ 

See summary of Definitions and Laws at close of this 
book. 



Theory of Value from the Standpoint of Demand, Marg= 

inal Utility. 

SINGLE COMPETITION, SUPPLY FIXED. 

AUSTRIAN VIEW. 

Will a man, as a rule, pay more for goods than he considers 
thetn worth to him ? 

The buyer's maximum price will be the highest price he 
can afford to pay in view of the utility he finds in the goods. 

1 Read Boehm-Bawerk's Positive Theory of Capital p. 154 f. n., also Ely's 
Outlines of Economies p. 125 f. n. 



10 

In the following list let each letter stand for a purchaser 
who can afford to buy at the price set against his name. 
A's maximum price is 8 cents. 
B's " " 9 

C's " " lo 

D's " " II " 

I Now if there is onlj' one article or commodity in the 
market, and that must be sold, who will secure it ? Why ? 

2. What price will he pay ? 

3. What will happen if he declines to pay over lo cents ? 

4. Who will secure goods if there are two articles of the 
kind in the market ? 

5. What will the price be ? 

6 Why will there not be a diff^irent price for each pu'-chaser ? 

7. If there are three articles in the market who will buy 
and what will be the price ? 

8. Who finds the greate-t utility in the goods bought ? 

9. Who finds the least utility in the goods bought ? 

10 Which man is on the margin of baing crowded out of the 
market ? 

N. B. The purchaser who is just able to secure goods at 
the current rate is called the marginal purchaser. 

It will be seen, then, that the market price is fixed at the 
measure of utility to the marginal purchaser, i. e. the one 
who buys at the greatest disadvantage. 

Problems Illustrating the Dependence of Price upon the 
Utility to the Buyer. 

6. Several men desire to buy oats, Each will take 1000 
bushels and estimates the marginal utility of oats to 
himself as equivalent to the price set against his name 



11 



in the following list. The supply of oats is fixed at 
4000 bushels. Who is the marginal purchaser ? What 
will be the price if they are all sold ? 

A's marginal utility 9 cents. 



B's 
C's 
D's 
E's 
F's 



10 
II 
12 
13 
14 



A buyer's maximum price is the money measure of the 
effective or marginal utility of goods to him. In the 
following problem each buyer wishes to secure 1000 
bushels of grain at the price indicated in the list. The 
supply of grain available is 5000 bushels. If it is all 
sold who is the marginal purchaser ? What must the 
market price be ? 

A's maximum price is 21 cents. 



B's 
C's 
D's 
E's 
F's 



22 
23 

' 24 

25 

' 26 



With the following conditions find the marginal pur- 
chaser and the market price, the available supply 
being 2700 bushels. 
A desires 1000 bu. at not more than 50 cents each. 

49 " 

48 " 

47 " 
46 " 

45 " " 
44 " " 
What would-be purchasers will be excluded ? 



B " 


900 


C " 


800 


D 


800 


E ' 


700 


F ' 


600 


G ' 


600 



12 



9- 



Find the marginal purchaser and the market price under 

the following conditions. 

A desires looo bushels of grain at i8 cents or less. 



B ' 


1200 


C 


1300 


D ' 


1500 


E ' 


' 900 


F ' 


600 


G ' 


500 



" " 19 


(1 II IC 


" " 20 


.1 II II 


" " 21 


11 II < 1 


" " 22 


(1 II 1 ( 


" " 23 


11 11 II 


" " 24 


II '1 1 II 


) bushels. 


Who will be 



The available supply is 3500 bushels, 
excluded ? 
It will be seen that the market price is fixed at the equiv- 
alent ot the effective utility to the marginal purchaser. 
The marginal utility to society is measured by the 
market price. • 



DOUBLE COMPETITION. 

NEITHER SUPPLY NOR DEMAND FIXED. 
SUPPLY. 
Sellers' Minimum Prices 
or Cost of Production. 
A's minimum price 4 cents 
B's " •' 5 '• 

C's " " 6 
D's " " 7 
E's " " .8 



DEMAND. 
Buyers' Maximum Prices 
or Marginal Utilities. 
F's maximum price 5 cents 



G's 
H's 
I's 
J's 
K's 



6 

7 
8 

9 
10 



1 . What is the lowest price at which anyone can sell ? 

2. How many sell at that price V 

3. How many can buy at that price ? 

4. How will the price be affected by these conditions ? 



13 

5' If the price rises to 5 cents, how many buyers and how 
many sellers will there be ? 

6. Will these conditions satisfy both buyers ayd sellers ? 

7. In order to get enough goods, what must the buyers do ? 

8. If the price be raised to 6 cents, what will be the con- 
dition of supply and demand ? 

9. Will the price tend to rise or fall ? 

10. At 7c what will be the supply and demand ? 

11. Will these conditions fix the price? 

12. What, then, are the conditions which fix the price under 
double competition ? State carefully. 

13. Under the following conditions, at what price will the 

supply and demand be equal ? 
Supply— Sellers' Minimum Prices 6, 7, 8, 9, 10, 11. 
Demand— Buyers' Maximum Price 8, 9, 10, ir, 12, 13, 14. 

14. What groups represent the needed supply ? 

15- Does the marginal cost coincide with the market price? 
16 What price measures the marginal utility to purchasers ? 
17. Does it coincide with the market price ? 

N. B. Under perfect (free) competition marginal cost and 
marginal utility will coincide, and the market price will be 
the price at which supply and demand are equal. 

PR0B;,EM3 under D0U3I.E COMPETITION. 
Find the market price under the conditions stated in each 
of the following problems. The quantity offered by each 
seller and desired by each buyer is always the same. 

10, Sellers' Minimum Prices 40, 41, 42, 43, 44. 
Buyers' Maximum Prices 38, 39,40, 41, 42, 43, 44. 

11. Sellers' minimum prices 65, 66, 67, 68, 69, 70. 
Buyers' maximum prices 64, 65, 66, 67, 68, 69. 



14 

12. Sellers' minimum prices 85, 86, 87, 88, 89. 

Buyers' maximum prices 82, 83, 84, 85, 86, 87. 

13. Sellers' minimum prices 8, 9, 10, 11, 12, 13. 

Buyers' maximum prices 7, 8, 9, 10, 11. 12. 

i4. Sellers' minimum prices range from 7 to 17 inclusive. 
Buyers' maximum prices range from 10 to 21 inclusive* 

15. Sellers' prices range from 6 to 15. 

Buyers' prices range from 10 to 14, 

16. Sellers' prices range from 8 to 14. 

Buyers' prices range from 11 to 16. 

17. Sellers' prices range from 8 to 13. 
Buyers' prices range from 10 to 14. 

18. Sellers' prices range from 3 to 12. 

Buyers' prices range from 9 to 16. 

In this problem is any there price at which the supply 

and demand are equal ? 

What is the supply and what the demand at 10 ? 

Will the price tend to rise or fall ? 

What is the supply and what the demand at 9 ? 

Will the price tend to rise or fall ? 

The market price will be somewhere betiueen g and 10. 

Problems Where all Intermediate Prices are not Repre= 

sented. 

19. Sellers' prices 2, 4, 6, 8, 10, 12, 14. 

Buyers' prices 10, 11, 12, 14, 15, 16, 18. 

20. Sellers' prices 11, 12, 13, 14, 15, 17, 18, 20. 

Bayers' prices 11. 12, 13, 15, 17, 22, 25, 26, 27. 

21. Add to the above conditions a purchaser and seller at 16 
and find the market price. 



15 
22. Sellers' prices 4, 6, 8, 12, 14, 15, 19, 22. 

Buyers' prices 24, 22, 20, 18, 16, 15, 14, 13, 12. 

23. Sellers' prices 36, 35, 33, 31, 30^^, 291^, 28. 
Buyers' prices 32, 33. 34, 36, 38, 40 

N. B. Solve each of these problems by the use of demand 
and supply curves on cross-section paper. 

The method of finding the market price of goods illus- 
trated in these problems under double competition is the 
same as that used in the Berlin Stock Exchange. In 
this exchange the persons who buy and sell stocks do 
not make their bargains directly with each other, but 
submit their bids for and offers of stocks to a committee 
who enter such bids and offers in tabular form, as in the 
problems below, and figure out the price of the stocks for 
the day. 
24. What will be the market price of C. & G. R. R. stock 
according to the following statement of bids. 

DEMAND. 

A desires 25 shares at 1.12 
B " 20 " " 1. 13 
C " 15 " " 1. 14 
D " 10 " " 1. 15 
E "5 " " 1. 16 

SUPPLY. 

F will sell 10 shares at 1.12 
G " " 10 " " 1. 13 
H " " 10 " " 1. 14 
I " " 15 " " 1. 15 
J " " 20 " " 1. 16 



16 

25- Find the market price of Little Giant Mining stock with 
the following bids: 

DEMAND SUPPLY 

14 shares at 1.19 10 shares at 1.19 

10 " '■ 1.20 21 " " 1.20 

11 " " 1. 21 14 " " 1. 21 
16 " " 1.22 II " " 1.22 
18 " " 1.23 10 " " 1.23 

Distribution. 

Distribution is the division of wealth among those who 
have aided in producing it. The share of each producer 
should be proportionate to his efficiency in the production. 
In his large work on the distribution of wealth, Professor 
J. B. Clark says: 

"It is the purpose of this work to show that the distri- 
bution of the income of society is controlled by a natural 
law, and this law, if worked without friction, would give to 
every agent of production the amount of wealth which that 
agent creates.— 

For an understanding of the plan on which this book is 
arranged, it is necessary to note that the principle oi final 
productivity — which, as the book claims, is at the basis of the 
law of wages and interest — can be stated in a few words; but 
when it is so stated, the significance of the terms used re- 
quires very extended defining. Interest, for example, is 
said to depend on the productive power of the final (margi- 
nal) unit of social capital." 1 

The agents of production are: 
r. Land. 

2. Labor. 

3. Capital. 

Of these the first two arc essential, and capital is a second- 

1. J. B. Clark's Distribution of Wealth p. IX. 



ary agent, being, itself, a combination of land and labor. 
Labor occurs in two forms, viz: That of the ordinary em- 
ployee who works for wages, and that of the employer (under- 
taker, entrepreneur) who hopes for profits, as the result of his 
superior business ability and management. 

The government, acting for society through its laws and 
courts, makes the possession of property secure and may, 
therefore, be considered an agent performing a certain kind 
of labor. We have then the following 

TABLE OF DISTRIBUTION. 

Agents of Sharers in Share or 

Production. Distribution. Portion. 

1. Land, Landlord. Rent. 

r Wage Earner. Wages. 

2. Labor. X Employer. Profits. 

( Society. Taxes. 

3. Capital. Capitalist. Interest. 
We shall study these shares of the distributed product in 

a different order from the above, and shall first consider 
interest. 

THE LAW OF INTEREST. 

FROM THE STAND POINT OF PRODUCTIVITY. 

From the business man's stand point interest is the 
price paid for the use of money. Money being representative 
capital, i. e., capital capable of being changed into any kind 
of capital goods one may desire. 

What the price shall be which one must pay for the use 
of money will depend on the adjustment of supply and de- 
mand for loan capital (money.) What each man estimates 
money to be worth to him for investment or for enjoymtnt 
constitutes its utility or productivity to him and is his max- 
imum rate. 



18 

DEMAND. MEASURE OF UTILITY- 

A desires $rooo at a maximum rate of 5% 
B " " " " 6% 

C " " " *' 7% 

D " " " " 8% 

1. If there is only $1000 available in the money market, 
who will ba the successful borrower? Why? At what 
rate? Why? 

2. If there is a supply of $3000 that must be loaned, at 
any rate, what borrowers will secure the loan? At 
what rate? 

3. Which of these borrowers is investing or using the 
money at the greatest advantage? 

4. Which part of the capital is invested at the great- 
est disadvantage? 

5. Who is the marginal borrower? 

■ 6. Remembering that each borrower's maximum rate 
means the pyodudivity of capital to him, by what is the 
rate of interest fixed? 

N. B. The student should now use the above suggestions 
to demonstrate the following expressions of — 
The Law of Interest. "The rate of interest is de- 
termined by the productiveness of that last (consider- 
able) part of ihe supply which is applied to industry at 
the greatest disadvantage." ^ 

"The rate of interest is, then, commenstirate xvith the 
marginal desirability of wealth, — speaking roughly, 
with the marginal (final) productivity of capital." ^ 
"Interest ... is said to depend on the productive 
power of \.\\e. final (marginal) unit of social capital." ^ 

1. Walker's Elements of Political Economy, 243. 

2. Davenport's Elementary Economics p. 104. 

3. J. B. Clark's Distribution of Wealth, p. IX. 



19 
Briefly, the rate of interest is determined by the ptoduc- 
tivity of capital in the hands of the marginal borrower. 
President Hadley says "We must note that interest is 
not a natural return for capital independent of skill. 
The power of capital to yield interest is dependent upon 
the skill with which it is managed. A borrower offers 
interest because he thinks he has the ability to earn it. 
The rate which capital commands will depend primarily 
upon the borrowers' estimates of their skill in this re- 
spect, rather than upon any natural or inherent quali- 
ties in capital itself" ^ 

Interest under Double Competition. President Hadley 
gives the following statement which may be taken as a 
general law of interest from the stand point of double 
competition. "We may say, in a rough way, that the 
rate of interest in any business tends to a point where 
the demand for capitsil on the part of those who think 
their profit will exceed that rate equals the supply tur- 
nished by those who think that it will not?"^ 

Supply — Lenders' Minimum Rates 4 5-6 7-8-9 
Demand — Borrowers' Maximum Rates s-G-y-S-g-io. 

1. Find the current rate of interest .under the law of value. 

2. Is this law inconsistent with the laws given previously? 

N. B. The rate of interest is, generally speaking, fixed at 
that point where the demand for and supply of capital 
are equal. 

3. Is there any similarity between this statement and that 
of President Hadley? 

1. Hadley's Economics p. 268 

2. Hadley's Economics, p. 271-2 



20 

4- Do all men pay the same rate of interest at the same 
time and in the same market? 

5. Are the loans all made under the same conditions? 

6. Would you lend $1000 on good security for thirty days 
on the same terms as you would for five years? 

7. How does the fact of short time aflfect the rate of interest? 

8. Would 5'ou lend^iooo for five years, with the privilege 
of payment o>i or before maturity, at the same rate as if 
you were sure that for five years 3'ou would not have to 
find a new borrower? 

9. Do people sometime loan money on rather doubtful se- 
curity if they can get a high rate of interest? 

10. Why is it that the government of the United States can 
so easily borrow money at two and three per cent.? 

11. Is not an excess above the current rate on first-class se- 
curities a sort of insurance against loss? 

Interest has been defined by economists as that part of 
the product which goes to the capitalist for the use of his 
capital. By the business man it is considered the price paid for 
the use of money. Some later economists define interest as the 
excess in value of present over future goods. In any of 
these cases the rate of interest will be determined, like value 
of other things, by the estimated utility to the marginal 
borrower, whether we say the marginal estimate of the ex- 
cess of present over future goods, or the marginal estimated 
productivity of capital about to be invested, or the price which 
the marginal borrower is willing to pay for the use of money. 
For the sake of simplicity let us consider the capital offered 
for investment as a species of goods offered for sale for a lim- 
ited time. According to our laws of price and value, the 
rate will be determined by the estimated utility of capital to 



21 
the least eager (marginal) borrower, that is by the final 
productivity of capital, by the productivity of that portion 
of capital which is applied to industry at the greatest dis- 
advantage. 

Usury. 

It is a common custom for the government to interfere 
in the loaning ot money and to fix a maximum limit to 
the rate of interest that may be charged. This is done 
in behalf of the borrower who is supposed to be at a dis- 
advantage in dealing with the lender. 

1. If money is drawing 12% in a certain community, and 
the security is good, will outside capital seek or shun 
that market? 

2. What will be the effect on the rate of interest? 

3. Suppose, now, that the government forbids a higher 
rate than 8%, will outside capital seek or shun that 
market? 

4. Will local money lenders find means to evade the law? 
N. B. There are various ways to evade usury laws; ^ a 

commission is frequently charged under various names, 
and though the letter of the law is kept, its spirit is vio- 
lated, and, because local capital is scarce and outside 
capital has no inducement to come in, the real rate of 
interest rena^ins about 12%. 

5. On the whole, what do you think of the wisdom of 
passing usury laws ? 

6. What action has your own state taken in this matter? 
It is a well known fact that in a new community where 

the opportunities for investment are promising and capital is 
scarce, the rate of interest is always high, and in old, well 

1 Walker's Elements p, 244. 



22 

settled communities, where there is much wealth seeking 
investment, rates are low. Rates of interest almost in- 
variably fall as a community grows in age and wealth. 

THE LAW OF WAGES. 
Wages is the share of the product which falls to the 
laborer on account of the value (productiveness) of his 
labor. Let us consider what determines the value and the 
market price of labor. 

Application of the Laws of Value and Price to the Labor 

Question. 

AUSTRIAN LAW. 

Although it is not strictly correct to call labor a commodity, 
inasmuch as we do not buy and sell labor but the products 
of labor (see Wealth and Services), nevertheless, wages are 
conveniently treated as the price of labor, and are usually dis- 
cussed on this basis. Let us consider labor under the law 
of marginal utility with the supply fixed. 

The utility of labor to any employer is measured by the pro- 
duct that labor turns out for that employer. Now it is evi- 
dent that the same gang of avera;j:e laborers will prove more 
productive to one employer than to another, on account of 
his better business management. But labor cannot expect to 
receive wages in excess of its productivity to the employer. 
To which employer ? Let us examine 

The following list shows the maximum wages (measure of 
the utility ot labor) that each employer can pay for labor, 
and the number of laborers needed by each employer at his 
maximum price or less. 

DEMAND FOR LABOR. 

A desires loo laborers at maximum rate of 6 cents an hour 

g ti It i< >( <i (< <i _ <i II I' 

(^ tt ' ( ( I t I II I I I I Q 11(1 II 

J^ U <> III! il t< (I - 1(11 (I 



23 



1. If there are only loo laborers to be had at any price, 

which employer will secure them ? 

2. \Vhat price must he pay ? 

3. If there are 300 laborers, which men will hire them ? 

4. Who is the marginal employer ? 

5. What will he be able to pay ? 

6. Will the other employers pay any more ? 

7. What then will be the current wages ? 

8. What is the measure of the productivity of labor to the 

marginal employer ? 

9. Does it coincide with current wages? 

10. What then is the law of wages from the standpoint of de- 
mand''. 

Problems in Labor and Wages. 

AUSTRIAN VIEW. 



26. 



DEMAND FOR LABOR. 

Productivity of Labor 
A needs 100 men at 5 cents an hour 



B 


(( 


i < 


>( 


" 6 


C 


1 1 


1 ( 


1 ( 


" 7 


D 


( < 


(( 


(< 


" 8 


E 


(( 


(( 


<4 


" 9 


F 


( ( 


( ( 


(( 


" 10 


G 


<4 


(( 


(( 


" II 


H 





t< 


(( 


" 12 



27. 



The supply of laborers is 500. What will the current 
wages be ? 

A needs 50 men at 7 cents an hour 

B " 48 " " 8 " " " 

C " 92 " " 9 " 

D " 75 " " 10 " 

E " 103 " "II " 



24 

Only 270 men can be found to meet the needs of these 
employers. What will the current wages be ? 
28. Hall laborers would work so much more carefully and 
faithfully that each employer would get one cent more product 
from his laborers per hour, would the wages be raised by the 
competition of the employers ? Change the conditions o^ 
the above problem and find the resulting wages. 

The law of wages from the view point of utility or pro- 
ductivity has been expressed by Mr. Walker as follows: 
"The rate of wages, determined by the productiveness of 
labor at the hands of the least competent employer (marginal 
employer) will become the rate of wages for all labor." ^. 
Henry George from a so?neiahat similar standpoint, but em- 
phasizing the influence of land and the law of rent, says: 
"Wages depend on the margin ofproductio7i, or upon the pro- 
duce which labor can obtain at the highest point of natural 
productiveness open to it without paying rent."^ Prof. 
John R. Commons quotes Mr. George as fixing wages at the 
productivity of labor on no rent land."^ Dr. E. T. Devine 
says "The law of wages, as given by Henry George, is that 
laborers will receive all that their labor can produce upon 
the poorest land which it is necessary to cultivate.*. 

This law is illustrated by the fact that in early colonial 
times, servants drew higher wages in America than in 
Europe, because if dissatisfied they could go to farming on 
practically free land.^ 

All these quotations are different expressions of the law of 
wages as based on productivity or marginal utility. 

1, Elements of Political Economy p. 2.53. 

2, Progress and Poverty, Book III, Chap. VI, p. 213. 

3, Distribution o\ Wealth, p. 17."). 

4, Economics p. 387 

5, Bullock's Economics, p. 28. 



25 
English Law 

Can the question of labor and wages be discussed from the 
standpoint of cost of production ? What is the cost of 
production of labor? Evidently the cost .of raising and 
maintaining the laborer, or the price that must be 
paid to enable the laborer to support himself and family 
according to the standard of living necessary to keep 
the laborer in effective condition. All modern economists 
claim that if the standard of living is crowded down too low 
by cruel employers, the condition of the laborer is so impaired 
that he is less and less productive. 

La Salles'' Iron Law of Wages held that the laborer was 
helpless to resist this lowering of wages, and therefore wages 
would always tend to fall to the standard of living which 
just provides the necessities of life. This is indeed the case 
when the number of laborers is greatly in excess of the de- 
mand and the state of the laborer is such politically, social- 
ly and industrially that he cannot resist this pressure. The 
competition is then very imperfect and employers are apt to 
combine for the reduction of wages, while the needs of the 
laborer prevent effective combination on his part. If how- 
ever laborers are so situated that they can refuse to work 
unless they get wages that insure a comfortable standard of 
living, they may force the employers to pay higher wages 
since the demand for labor will exceed the supply. This 
was the case after the Black Death, (1349 A. D.) in the 
reigns of Kdward III and Richard II, when because of the 
great reduction of the laboring population, and in spite of 
the Statute of Laborers (1351 A. D.) forbidding the increase, 
wages rose to a very marked degree. In 1381 A. D. these 
conditions led to the Peasants' Revolt under Wat Tyler, 
an account of which can be read in Cunningham's Outlines 
of English Industrial History pp 41-44, and in Gibbins' In- 
dustrial History of England pp 67-74. 



26 

Remembering that cost of production of labor means stand- 
ard of living and that the minimum wages for which a man or 
group of men will work means \.he standard 0/ living upon 
which they insist, let us consider the following conditions: 
100 mtn willing to work at minimum wage of 6 cents per h 
100 " 
100 '' 

Jl\(\ '■'• li il " " (' '' " 1 1 " '' 

1. If there are only 100 men needed which men will be em- 
ployed and at what price? Why? 
3. It 300 men are needed what will be the wages paid? 

3. What will be the marginal standard of living? 

4. Who are the marginal laborers? 

5. From the view-point of standard of living (cost of 
production,) how would you state the law of wages? 
Mr. George Gunton, in his Wealth a?id Progress, has 

discussed the various laws of wages suggested by La Salle, 
Walker, and George, and gives his own opinion as follows. 
"Therefore we may say the chief determining influence in the 
general rate of wages in any country, class, or industry, is 
the standard of living of the most expensive families i\xxn\s^- 
\ng '3i necessary pa? t of the stipply of labor in that country, 
or industry."^ 

In short wages may be said to be determined by the 
standard of living of the marginal laborers, i. e., the laborers 
who cost the employers the most. 

All efforts to raise the standard of living on the part of 
laborers will, if properly conducted, tend to an increase of 
wages. Most of the methods, of the trades unions look in 
this direction rather than towards increasing productiveness. 

This point will be discussed further later on. 

1, Wealth and Progress, p. 86. 



27 



Problems in Labor Under Double Competition. 

28. Find the rate of wages under the following conditions. 
Supply of Laborers. Demand for Labor. 



Stanc 


ard of L 


iving. 






Producti 
to E 


vityof Labor 
mployer. 


100 at 


5c an 


hour. 


A 


needs 


100 men 


at 5c an 


hour 


100 " 


6c 




B 




100 




6c 


t < 


100 " 


7C 




C 




100 




7c 


( 1 


100 " 


8c 




D 




100 




8c 




100 '• 


9c 




E 




100 




9c 




100 " 


IOC 




F 




100 




IOC 




100 " 


lie 




G 




100 




lie 




100 " 


I2C 




H 
I 


(1 


100 
100 




I2C 
13c 





29 



30- 



31- 



Increase the productivity of labor one cent per hour in 

each group and find the rate of wages. 

Increase by one cent the standard of living of each 

group in this problem, leaving the productivity as at 

first, and find the rate of wages. 

Increase both standard of living and the productivity by 

one cent and find the rate of wages. 
This shows that two things are necessary, if laborers would 
secure an increase of wages equal to their increased produc- 
tiveness, viz. : grexter efficiency and insistence on a higher 
standard of living. 

Are both of these points equally emphasized in the ordi- 
nary plans for the laboring classes ? 

The Wage Fund Theory is that a certain portion of capital 
is set aside for wages. The average wage is obtained by divid- 
ing the wage-fund by the number of laborers, and the only 
way to increase wages is to decrease the number of laborers. 
This theory, though generally advocated early in the XIX 
century, is now discarded by most economists. 



28 
Wages and Competition. 

Speaking of the history of wages and competition, Prof. 
Clark says: "The historical fact of the past three hundred 
and fifty years has been that real wages have declined for 
three centuries and advanced for half a century. The de- 
cline was not continuous; there was a rapid fall, a partial 
recovery, and a second fall, leaving the workmen, in other 
than favored countries, in extreme wretchedness. This 
great decline took place during an era of generally conserva- 
tive competition; while the advance which has followed it 
has been recent, and has taken place in an era in which the 
money-getting spirit has overcome the former conservative 
influences, and in which, in the fields in which it survives, 
it has been of an unsparing character." ^ 

Real and Nominal Wages. 

It should be remembered that ""real wages are the re- 
muneration of the laborer as reckoned in the necessaries, com-, 
lorts, and luxuries ot life," ^ while wages as expressed in 
money are only nominal wages, varying with the purchasing 
power of money. 

In good times when (nominal) wages are high, goods 
are also apt to sell at a high price, making real wages less 
than people suspect. On the other hand real wages in hard 
times are sometimes, especially in case of salaries, much 
better than they seem, on account of low prices of goods. 

In his Handbook on Currency and Wealth, George B. 
Waldron gives some very interesting tables showing the re- 
lative purchasing power of wages in successive years from 
1840 to 1892. ^ By these tables the relative purchasiyig 
power of wages rose hQ.ivje:Q.n 1840 and 1892 from 8^.4. to 181, 
while the length of the day of labor decreased from 114 hours 
to 1 o hours. 

1. "PhilosoDhy of Wealth p 131, Read also Gide'.s Political Economy p 503." 

2. Walker's Advanced Political Economy, p. 245. 

3. Handbook of Currency and Wealth, pp, 82-85. 



29 
Profits. 

Profits is the part of the product which goes to the pro- 
prietor or employer (entrepreneur or undertaker) on account 
of his superior business management. It is a well known 
fact that several men may invest the same amount of money 
in capital and the employment of labor, and yet because of 
varying ability i?i ma^iaging their business, the quantity of 
goods produced varies, and therefore the cost of production 
of a single article will be much less for the best business 
managers. 

We have learned that the market price of goods is fixed 
by the cost of produdioji to the marginal producer; it is 
therefore evident that all who can, by superior ability, pro- 
duce for less will have a profit. 

ORIGIN OF PROFITS. 

lyCt US consider one of our previous problems. In the 
first study of value on pages 3 and 4, we have found em- 
ployers producing balls at costs varying from 15 cents to 
22 cents each. With the demand for 7,000 balls, G would 
be the marginal producer and his cost would be the normal 
price of the goods. Now if all the successful employers 
had had the same business ability as G each would have 
produced at 21 cents and none of them would have made 
any profit. Not until there was some difference in business 
ability among those supplying the market would there be 
any profits lor any of them. Kich would have to be con- 
tent with simple wages of superintendence. Difference in 
business ability and business management is indicated by 
■difference in cost of production. 



30 
COST OF PRODUCTION. 

In the sense usuilly employed, the cost ot production 
includes all the expense growing out of the use of labor and 
capital. The cost of labor is for wages of employees^ and the 
compensation to the matginal employer which prevents his 
giving up the business and becoming an employee. This 
compensation is a sort of wages of superintendence which he 
allows himself, and if his ability as a manager fails to 
keep him assured of this, he is crowded out of the business. 
There is also the labor of society through its legislature, 
courts and executives, by which possession of property is 
secured and production facilitated.^ The expense of this 
labor is represented in taxes. The cost of production may 
be expressed as follows: 

I. Cost for capital. 

1. Replacement. 

(a) Wear and tear of machinery, buildings, etc. 

(b) Materials. 

2. Insurance. 

(a) For risk of loss in the business. 

(b) For loss by fire and tornado. 

3. Interest on investment at current rates. 
II. Cost for labor. 

1. By employees = Wages. 

2. By Employer = Wages of superintendence. 

3. By Society = Taxes. 

1. See Clai-k's Philosophy of Wealth pp. 11-12. 



31 
THK MEASURE OF PROFITS. 

I, FROM THE STAND POINT OF COST AND PRICE;. 

If these profits originate in difference in business ability 
and business management, how are profits measured? In 
the third problem on p. 5, we have seven employers with 
varying business ability as indicated by the cost of produc- 
tion in each case. 
3. Given a demand for 3500 tennis balls and the following 
conditions of cost of production. 

PRODUCER PRODUCT COST OF PRODUCTION 

A can produce 1000 tennis balls at 18 cents each. 



B 
C 
D 
E 
F 
G 



1200 

1300 

1500 

900 

600 

500 



19 " " 


20 " " 


21 " " 


22 " " 


23 " 


24 " 



With the given demand, who is the marginal producer? 
What is his cost of production ? 
What will be the market price ? 
What will be the profits of the marginal producer ? 
Who will be driven from the business because of the ex- 
pense of production ? 

What will be the profits to each of those who do szcpply 
the market ? 

7. By what will the profits be measured in each case ? 

8. Show that profits are measured by the excess of market 
price above cost of production. 

9. Show that profits are measured by the degree to which 
any employer can reduce his cost below that of the 
marginal producer. 

Which is the better way to express the law ? 
Is the function of the employer to raise the market price 
above his cost, or to reduce his cost below market price ? 



10. 
II. 



32 
THE MEASURE OF PROFITS. 

II. FROM THE STAND-POINT OF PRODUCTIVENESS — UTILITY. 

Let US now consider the measure of profits from the stand- 
poiut of productiveness — utility. 

In the following prqblem five business men invest $252.00 
each in labor and capital. With this investment 

Prob. 32. A produces 1890 baskets 

B " 3050 

C " 3600 

D " 4200 " 

E " 5040 

^ . Which of these proprietors has the best business ability ? 

Which has the poorest ? 
2. If the demand is for 12840 baskets, what proprietors, 

(entrepreneurs) will be crowded out of the business ? 

4. Of those who suppl}^ the market, who will, with his 
$252, produce the largest quantity of utility, (product.) ? 

5. Who will produce the least ? What do you call him ? 

6. How much of his product must the marginal entrepre- 
neur sell to cover expenses ? ^ 

7. How much of his product must each ot the other entre- 
preneurs sell to cover /«'»• expense ? 

8. Which will have a surplus of product after paying ex- 
penses ? 

9. What do you call this surplus ? 

10. Formulate a careful statement of the measure of profits 
as expressed in products. 

1. Remember that cost or expense includes the proprietor's 
wages of superintendence. 



38 
The Effect of Profits on Price. 

It is often claimed that Large profits cause high prices^ 
but the claim is without foundation under free competition, 
and true only to a limited degree under monopoly. Indeed 
the truth of the matter may be fairly indicated by the fol- 
lowing theorems: 

.-Theorem I. Profits may be increased ivhile the price re- 
mains the same. 

lyCt the following statement show the cost of production 
to eight different undertakers, each producing i,ooo 
balls at the retail cost set against his name in the list. 
A, B, C, D, E, F, G, H. 
15- 16-17- 18-19- 20-21-22. 

If now the demand is fixed at 5,000 balls, who will be 
the marginal undertaker or entrepreneur? and what will 
be the market price? 

What will be the profits for each producer? 
Suppose now that A, B, C and D, all succeed in reduc- 
ing the cost of their product one cent each; will the 
profits be increased? 
Will the price be changed? 

Make a demonstration based on these questions to prove 
the above theorem. 
Theorem II. Profits may be increased while the price is di- 
minished. 

L,et the student make a demonstration of his own for 
this theorem. 

Mr. Walker has said ^ "Prices, then are not high be- 
cause profits are made; but profits are made because 

1. Walker's Elementary Political Economy, p. 221. 



34 

prices are high." Although this is true in the sense 
in which he meant it, we must not draw the conclusion 
that high prices are'the efficient cause of large profits, 
for 

Theorem III. Prices may be increased while the profits re- 
niaiyi the same. 

As above, with a demand for 5000 balls, what will be 
the effect on price, if the cost of the material increases 
the cost of production one cent in each case? 
Will there be a corresponding increase in profits? 
Write out a demonstration of this theorem. 

Theorem IV. Prices may be increased while profits decrease. 
Write out a demonstration of this theorem. 

PROFITS AND WAGES. 

There is a common feeling among the working people 
that wages are low because profits are high, — that large 
profits are practically taken out of wages. There is, there- 
fore, a feeling of antagonism toward employers who make 
large profits. 

Where the charge is a true one, the fault lies in an im- 
perfect competition which gives the employers an unfair 
advantage, for under free competition we shall have condi- 
tions somewhat as follows: 

A wishes to hire 1000 men at a maximum wa2;e of 9c per hour 
B '• " " " IOC 

C " " " " lie 

D " '• " " I2C 

E " " " " 13c 

F " " " " 14c 

G " " " " 15c 

H " ." " " i6c 



35 

If the supply of laborers is 8000, what will be the cur- 
rent wages? 

Now if F, G and H increase their business so as to 
need 2000 men each, and there is no increase in the supply 
of laborers, who will be the marginal employer, and what 
will the wages be? 

What class of employers will be excluded from business? 

Will the results be better or worse for the wage-earners? 

If G and H increased their business so as to need 4000 
men each, what will be the results as to wages? 

Under the law of wages (determined by productivity) 
will wages be higher or lower when the best business man- 
agers absorb the supply ot labor? 

Is it possible for the employers to avoid paying higher 
wages under perfect competitionf 

How would it affect the situation if the wealthy em- 
ployers should send agents to Europe to advertise for and 
encourage immigrant laborers to come over here, or should 
entice outside labor into this vicinity till the supply of labor 
is increased to iiooo? 

What would the wages be then? 

Is anything like this done in practical business life? 

Has the government ever interfered to prevent such 
practices? If so, how? 

Is such interference wise? Explain. 

Suppose that H and G should combine their factories 
into one and try to kill off competition with the other em- 
ployers by raising the wages to 15c and cutting the price of 
goods to their narrowest margin, could they drive the others 
out of business? 



36 

Would the result be good or bad for labor, as far as 
nominal wages ^ is concerned? 

How would it affect laborers in their real wages if not 
only these employers but the strongest business men in all 
lines of necessary goods should also combine? "- 

Have real wages increased under the regime of combines 
and trusts that have become so prominent? (See Mr. 
Clark's statement as quoted on p. 28, also Waldron's Table 
of Comparative Wages quoted on ptge 41.) 

Will any combination of captains of industry ever be 
able to shake off the latent, potential (possible) competition 
of these other producers represented by A, B, C, D, etc? 

Iftheydoit at all, must they not do it by keeping 
prices below, or wages above the reach of these would-be 
competitors? 

Are the prices of most trust-pi Deduced articles lower today 
than in the old days before the great combinatioyisf 

Compare prices of goods in the various tables quoted 
on page 42. 

It will be seen by these studies that the real and effi- 
cient cause of profits is not in high prices, but in a larger pro- 
duction for the same cost, or a reduction of cost belozv market 
price. 

In tbe struggle between labor and capital (more strictly 
speaking, between laborers and employers) the inequality ot 
chances is increased for the laborer by his ignoraiice, his im- 
prudence, the size of the family dependent upon him, and by 
the violence and short-sightedness of his leaders. Early 
marriages load the majority of the working men down with 

1- For nominal and real wages see p. 28. 
2. Always prcsupposingr free competition. 



37 

heavy responsibilities and expenses, their tobacco and beer 
and other small vices make inroads on their savings and effect- 
ually prevent those accumulations in the savings bank which 
are the very sinews of war when the time comes for resist- 
ance to the unjust demands of their employers. The mainten- 
ance of a good standard of living (p 27) therefore becomes 
a difficult matter. The introduction of cheap immigrant la- 
bor, CDntrary to law, is also a very potent factor of unfair 
competition. 

THE I.AW OF MONOPOLY PRICE. 

The pure profits of the undertaker, or entrepreneur, are 
just and fair profits under free competition, but when, by 
combination, legal enactment, or natural conditions, the con- 
trol of the market falls into the hands of a monopoly, the 
conditions are changed. 

It sometimes happens that, temporarily, one person 
or combination gets control of the supply (a corner) and re- 
stricts the sale till prices rise to suit his greed. 

To see how this might be, let us suppose conditions are 

as follows: 

THE SUPPLY OF OIL. 
Problem 33. 



Oil well No. 


ip 


roduces i ,000,000 ga 


Is. of < 


Dill 


% 8c 


X 


(( 


2 


1 ( 1 ( 


( < 


( 


' 9C 


1 ( 




3 
4 


4< <( 
It <t 


( t 


1 1 


' IOC 

lie 


1 1 


(' 


5 


< 1 ( ( 

DEMAND. 


t' 


( 


' I2C 


Market 


No. 


I 
2 
3 


calls for 1,000,000 


gals. 


@ 


I2C 
13c 
14c 


( ( 


( ( 


4 


(1 (( 


( ( 




15c 


(( 


(< 


5 


<( < ( 


( ( 




i6c 



38 

1. Find the market price. 

2. Find the legitimate profit to each producer. 

Now suppose that one man or a trust secures control 
of all these oil wells, and by good business management, re- 
duces the cost of production to 8 cents at each well. The 
demand of the public remains the same, but we now have a 
case of single competition (or one-sided competition). The 
consumers still compete with each other for the purchase of 
oil, but the producers or sellers are united and do not com- 
pete. 

If the trust offers its whole product of 5,000,000 gallons, 

what will be the market price? 

Will the trust have any advantage over the most suc- 
cessful oil producer under the previous conditions. 
Will its profits be fair and just? 

But suppose the monopolist withholds 1,000,000 gal- 
lons, what will be the effect on price? 
Will his total receipts leave him a profit on his invest- 
ment? 

What rate per cent, will he clear V 

If he withholds 2,000,000 gallons, what will the mar- 
ket price be? 
What will he clear? 

If he offers only 2,000,000 gallons, what will be the 
price. 

Will his total receipts cover expenses? 
Why will he net force the price still higher by withhold- 
ing yet more of the oil? 

At what price will his own best interests require him to 
sell? Why? State carefully. 



39 
TABI.E SHOWING THE PRINCIPLE OF MONOPOIvY 

PRICE. 



With a Sup- 
ply of 


1-1 

(U ■ 

^§ 

00 


Total Cost 
Expense oi 
Production. 


*-> 


en 




Total Gain 
A-bove Ex- 
pense. 


Per Cent 
Gain to 
Trust. 


5,000.000 gal 8c 

4,000,000 " IOC 

3,000,000 " i3|c 
2,000,000 " 20c 
1,000,000 " 40c 


$1,000,000 

'I 


I2C 
13c 
14c 

i6c 


|6oo,ooo 
520,000 
420,000 
300,000 
160,000 


$200,000 

120,000 

20,000 

-100,000 

-240,000 


50% 

30% 

5% 

-25% 

—60% 



We find then that the monopolist can not fix the price 
of his goods without regard to the needs of the people, but 
finds himself subject to the lav^ of monopoly price, viz: 
The moyiopolist is forced by self interest to sell at that price 
whose excess above cost, multiplied by the demand, gives the 
largest pro/it. 

It is 9. well known fact that the Banana Trust de- 
stroyed large quantities of bananas which had cost them 
good money, and by reducing the supply obtained a price 
which netted them larger profits. Some goods of a less 
perishable kind can be withheld from the market lor the 
time being so as to raise the price, and afterwards can be 
sold at a profit. 

Problem 34. Change the- conditions in the last problem so 
that the respective prices of the demand shall run from 
10 cents to 14 cents, and prepare a table like that above, 
and find the price under monopoly and under free com- 
petition. 



40 
MONOPOLY PROFITS. 

The profits of the monopolist are supposed to be higher 
than those obtained under free competition, but under the 
law of monopoly price, it is sometimes true that the large 
sales at a low price make it desirable to sell lower than the 
competitive price would have been with a number of small 
producers furnishing the market. This is true in the last 
case, cited (problem 34..) Usually, however, monopoly 
prices are supposed to be a little higner than the market 
price would be under free competition, though it is probably 
a very difficult thing to say what prices would have been 
under a tree competition which lias not existed for a long 
time. Generally j-ptaking, the imfah profits extorted by 
monopolists exist only when the motiopolisC s price is higher 
than competitive pt ices would be and therefore monop oh profits 
aye measured by the excess of monopoly price over competitive 
market prices. 

The following table, showing the trend of wages during 
the last sixty years, illustrates the remarks quoted from 
Professor Clark on page 28. 

The other tables given in this connection show the 
trend of prices of certain trust-made commodities during the 
great trust period of our history. 

Has the general fall in prices been caused by combina- 
tions or by inventions or both? 

To what extent would the great improvement in mach- 
ine production have teen possible under the regime of 
small producers which was driven out by combinations 
and trusts? 



41 



PURCHASING POWER OF A DAY'S LABOR. 

From "Handbook on Cnrrency and Wealth," by George B. 
Waldron, A. M,, statistical editor of "The Voice." 

All figures are on percentages with the year 1860 as 100. 



OB S 



oft 

03 r! 



05 S 



OJ 



o o 
'53 01) O 








=^ 


IS 





^ = s 


3 33 


"^s^ 




* fe T 


(B C2, 






oj 2P=s 


> cd 


tf.SQ 


<^ 



05 C 

J- O C 



, a: ^ 

4JQ, t. 

"5 be q 



P3.2W 



84.4 


11.4 


81.4 


11.5 


m 3 


11 4 


98.5 


li..^ 


97.9 


11.6 


97 2 


115 


93.6 


11.4 


95 9 


11.5 


103 8 


11.3 


1(8 4 


11.2 


101.9 


11.5 


92.4 


114 


93.8 


11.2 


88 8 


11.3 


91.2 


11.1 


89.3 


11.1 


87.3 


no 


87 


10.9 


86 5 


11.0 


96.9 


11.1 


100 


11.0 


107.0 


10.9 


99.6 


10.8 


89.9 


10 8 


77.9 


10.8 


64 


10.7 


82.9 


10.8 


98.6 


10.8 


94.8 


10.6 


109.9 


10.6 



74.0 

70.8 
81 8 
85 7 
84 7 

84.5 
82.1 
83 4 
91.9 

92.7 

88.6 
81,1 

83 8 

78 6 

82.2 

80.5 
79.8 

79 8 
78.6 
87.3 

90.9 
98 2 
92 2 
83 2 
72.1 

59 8 
76.8 
91.3 
89.4 
103.7 



1870 


115 7 


10.5 


1871 


122.3 


10.5 


1872 


126.2 


10.5- 


1873 


128.8 


10.5 


1874 


125 1 


10 5 


1875 


122.6 


10 3 


1876 


123.5 


103 


1877 


126 6 


10.3 


1878 


134.7 


103 


1879 


146 7 


10.3 


1880 


136.3 


10.3 


1881 


139.0 


10 3 


1882 


140 2 


10 3 


1883 


149.3 


10.3 


1884 


151.2 


10.3 


1885 


167.1 


10.3 


1886 


166.8 


10 2 


1887 


165.7 


10.0 


1888 


1641 


10 


1889 


165 3 


10 


1890 


179. 5 


10 


1891 


178.6 


10.0 


1891 Oct 


181.5 


10.0 


1892 Oct 


181.0 


10 



110.2 
116 5 
120.2 
122.7 
119 1 

119.0 
119.9 
122 9 
130.8 
142.4 

132.3 
135.0 
136.1 

145 

146 2 

1622 
163.5 
165.7 
164.1 
165.3 

179.5 
178.6 
181.5 
181 



Make a diagram on cross-section 
paper showing the rise andfallin 
wages and length of a day's work 

Make three curves, one for each 
column of statistics. 



42 



TABLE OF PRICES AND FREIGHT RATES. 



Calendar 
Year 



1864. 
1865. 

1866. 

18G7. 
1868. 
1869. 
1870. 

1871. 

1872. 
1873. 
1874. 
1875. 

1876. 
1877. 
1878. 
1879. 
18S0. 

1881. 

188?., 
1883., 

1884., 
1885., 



1886. 
1887. 
1888. 
1899. 
1890. 

1891. 
1892. 
1893. 
1894. 



Prices of Crude Oil per barrel, Steel 

Rails per ton, and Nails per keg of 

100 Ihs 



Crude 


Steel 


Cnt 


Oil 


Kails 


Nails 


$7 85 


Iron 


$7 85 


6 35 


Kails 
Used 


7 08 


3 76 




6 97 


2 40 


$166 00 


5 92 


3 57 


158 50 


5 17 


5 64 


132 25 


4 87 


3 80 


106 75 


4 40 i 


4 42 


102 50 


4 52 


3 68 


112 00 


5 46 


1 84 


120 50 


4 90 


1 17 


94 25 


3 99 


1 33 


68 75 


3 42 


2 61 


59 25 


2 98 


2 37 


45 50 


2 57 


1 17 


42 25 


2 31 


86 


48 25 


2 69 


95 


67 50 


3 68 


85 


61 13 


3 09 


79 


48 50 


3 47 


1 06 


37 75 


3 06 


84 


30 75 


2 39 


SSi 


28 50 


2 33 


71^ 


34 50 


2 27 


m% 


37 08 


2 30 


9,1% 


29 83 


2 03 


M% 


29 25 


2 00 


84}^ 


31 75 


2 00 


66Ji 


29 92 


1 8(5 


857tV 


30 00 


1 83 


661^ 


28 12 


1 44 


87!!^ 


24 00 


I 08 



Wire 
Nails 



$3 15 
2 55 
2 49 
2 51 

2 05 
1 70 
1 49 
1 11 



Average freight rates 
per bushel on wheat 
from Chicago to New 

York. 



B.V Lakel 

and 

Canal 



By all 
Rail 



cents. 
28 36 
26.62 

29.61 
22.36 
2279 
25 12 
17.11 

20.24 
24.47 
19.19 
14.10 
11.43 

958 
11.24 

9 15 
II 60 
12.27 

8.19 
7.89 
8.37 
631 

5 87 

8 71 
8.51 
5 93 
6.89 
5.85 

5.96 
5.61 
6.33 
4.44 



cents. 



42.6 
.35.1 
33.3 

81. 

33.5 
33.2 
28.7 
24.1 

16.5 
20.3 
17.7 
17.3 
19.9 

14.4 

146 

16.5 

13.125 

14. 

16.5 

15.74 

14.5 

15. 

14.31 

15. 

14.28 

14.7 

12.88 



(Continued on Page 43.) 



48 



TABLE OF PRICES AND FREIGHT RATES. 

(Continued from Page 42.) 



Calendar 
Year 



1895. 
189fi. 
1897. 
1898. 
1899. 
1900. 



Prices of Crude Oil per barrel, fSteel 

Rails, per ton, and of Cut Nails, per 

kes" of 100 pounds- 



Average freight rates 
per bushel on wheat 
from Chicago to Ne\\' 
York. 



Crude 
Oil. 



1.36 

1.201^ 



Steel 
Rails 



Cut Nails 



24.33 

28 00 
18.75 
17.62 
28 12 
32 29 



1.47 
232 
1 56 
1.31 
2.21 
2.48 



Wire 
Nails. 



1.69 
2.. 50 
1.45 
1.45 
2.57 
2.76 



By Lake 
and 
Can al 



4.11 
5.38 

4 35 
4.42 

5 65 
4 42 



By all 
Rciil 



12.17 
12. 
12.32 
11.55 
11.13 
9 98 



Adapted from U. S. Statistical Abstracts by Mary O. Stuart, Iowa State 
Normal School, Class of '91. 

Make diagrams on cross-seclion paper showing, by 
curves, the rise and fall in prices in oil, rails, nails and 
freight rates. 

If canal rates are so much cheaper than rail-road 
freights, why are not canals more common? Read the 
chapters on canals in ^\y^ s Problems of Today. 



44 
RENT. 

Rent is the share of the product which goes to the land- 
lord on account of the productivity of the land. 

A's farm averages 30 bu. to the acre. 



B's 


" 


' ' 


29 " 


C's 


C ( 


i 1 


28 " 


D's 


1 ( 


u 


27 " 


E's 


< 1 


" 


26 " 


F's 


(( 


( < 


25 " 



Which is the most fertile of these farms? 

Which would you prefer to own? 

If you could secure F's farm free of rent and had to pay 

one bushel per acre for rent on E's farm, which of the 

two would you take? 

If these six farms varj in size and each pfoduces a total 
crop of y 000 bushels which will it pay to cultivate when there 
is a demand for 4000 bushels? 

Which will be the marginal farm? 

How much of his product will th^ owner have to sell to 
cover costV 

Which will have a surplus after paying the cost of 
production? 

How many bushels can each afford to pay as rent? 
By what is the rent measured? Express in product. 
Suppose the productivity of all the farms was the same, 
would any of them produce a surplus above costV 
Could rent be required of any of them? 
With what, then does rent originate? 



45 
I^t US find the measure of rent in money. Using prob- 
lem 5, page 6* we have the following conditions. 

A's product is 277 bu. 

B's " " 858 " 

C's " " 924 " 

D's " " looi " 

E's " " 1092 " 

With a demand for 3017 bu. and a total cost to each pro- 
ducer? of $120. 12: 

Which farms will supply the demand? 
Which farm is producing at the greatest advantage? 
Which is the marginal farm? 
Which fixes the price? 
What will the price be? 

What rent in money can each afibrd to pay? 
How much rent can each afford to pay per bushel? 
How might you express this in a general statement? 

Problem 35. Take the agricultural conditions as given in 
Problem 4, p. 6, and find the marginal farm and the 
rent ot each farm, both in money and in product. How 
much rent could be paid on each bushel? 

Problem 36. Take the conditions as given in the fifth 
Problem, p. 6, and find the marginal farm, price, and 
the rent on each farm both in money and product. 

LOCATION OF FARMS. 
Fertility is only one element in productivity. A less fer- 
tile farm if nearer some great city may be more valu- 
uable, more truly productive, than a more fertile farm 
remote from any market. 



46 

Problem 37. Let us suppose the following conditions: 
Farms A B C b E F 

Fertility 30 bu. 29 28 27 26 25 
Cost of transportation per acre 3 bu. 2 10 00 

What is the 7eal productivity of each farm expressed in 

bushels? 

If the product of all the farms is needed to supply the 

the market, what rent can each pay? 

Problem 38, Smith's farm yields 60 bushels of corn to the 
acre; Clark's yields only 40 bushels, but Clark's farm 
is so near the railroad station that he can deliver ten 
loads of 35 bushels each day, while Smith being thirty 
miles out in the country requires two days to deliver 
a load and return home. The driver's wages are $2.00 
and the team counts for $1.50 a day. The cost of cmI- 
tivatioii on each farm is $20 per acre. Required the 
real cost of production per bushel on each farm and 
the rent of each when the market pike of corn is 62c a 
bushel. 

ECONOMIC RENT AND PRICE- 

Remembering now that rent arises out of difference in 
productivity, and may be caused either by variation in fer- 
tility or proximity of a market, we are ready to consider the 
question whether high prices are caused by large rents. We 
must always remember that the rent of every day conversa- 
tion is a combination of economic rent^ due to productivity 
of soil, and interest on the capital invested in permanent im- 
provements on the farm, such as houses, barns, fencing, til- 
ing, etc Our discussion is restricted to economic rent. 



47 

Theorem V. Rent may be increased while price remains the 
same. 

Utilize the element of reduction in transportation by the 
building of a grain elevator near the most fertile farm, 
and prove this theorem. 

Theorem VI. Rent may be increased while price is dimin- 
ished. 

N. B. Let railroad connections be made with a farm 
more fertile than any before furnishing this market, 
and note the probable result on marginal farm, price 
and rent. 

Theorem VII. Prices may be increased ivhile rent remains 
the same. Could conditions exist that would justify this 
theorem? 

N. B. Consider the effect on all cost, and hence on 
price, of a scarcity of labor through emigration or the 
introduction of manufacturing business. 

Theorem VIII. Prices may increase ivhile tents decrease. 
Think of conditions which would enable you to prove 
this theorem. 

URBAN RENTS. 
The principle of rents may be applied to city lots 
through the element of location. 

QUESTIONS. 

1. For which would you pay the larger rent, a business lot 
remote from the best business part of town or one in the 
heart ot business? 

2. If you were in the business of producing machinery 
which you sold to foreign markets and people in other 
states, would you be willing to pay higher rent for a 



48 
building near the docks and railroads than for one ten 
blocks or more from these means of transportation? 

3. Explain how you would be warranted in such apparent 
extravagance. 

4. Explain how the principle of rent applies to residence 
lots 

5. When a man buys a city lot in the outskirts of town and 
waits for the rise in value due to growth of the city does 
he earn the increase in value? 

6. To what is the increase due? 

THE UNEARNED INCREMENT 

AND SINGLE TAX. 

In 1830 a quarter acre of land at the mouth of the Chi- 
cago River could have been bought for $20. There were at 
that time 50 people living in that immediate vicinity. In 
1894 the the population of the city was about 1,500,000, and 
the same quarter acre of land was worth 11,250,000. ^ This 
immense increase in value was evidently caused, not by the 
labor of the owner, but by the conditions attending the in- 
crease of popidation. Such an increase of value is commonly 
called 'Hhe unearned increment,''' and it is claimed by Henry 
George and many others that no man has a right to acquire 
wealth in this way, that the unearned increment should go 
to society at large. Indeed the claim is that no man should 
own land, but that land should belong to society, that is the 
State, and that every man should pay a rent to the State, based 
on the economic rent of rural land and on the '-gtound rent,'' 
for the unimproved lot in town. This theory is called the 
Single Tax Theory of Henry George. Under this plan the 
viatginal land would not be taxed at all. Prove the follow- 
theorems: 

1. See tabular statement in Thurston's Economics and Industrial His- 
tory p. 235. 



49 

Theorem IX. A tax laid on economic rent would not affect 

prices. 
Theorem X. A tax laid on the market value of land does 

affect p7 ices. 

John Stuart Mill, the President of the English Land 
Tenure Reform Association, held views somewhat less radi- 
cal than those of Mr. George, who even went so far as to 
urge the confiscation of property ^ in land, and the idea of 
nationalization of land was for a time very popular, 
but the inadequacy of a single land tax to supply the 
needed revenues of the state is now pretty generally con- 
ceded, while the utter injustice of confiscating land property 
acquired under the sanction of the state is obnoxious to all 
fair minded people ^ 

RENT AND FREE LAND. 

In a new country all land is at first practically free. 
Each new comer selects his home, and occupation is prac- 
tical possession. Squatters rights are unchallenged. As 
population increases and the most desirable land is taken 
up, only the less desirable land is free — land further from 
business and the market or land markedly less fertile. 

The best of the free land, that which will only just pay 
for cultivation, is the marginal land. There are poorer 
lands that are free, varying in productivity down to those 
which will just enable men to support life. These lands 
may be called sub-marginal lands. Lands of a still poorer 

1. Bead George's Progress and Poverty, Chapter II, Book VIII. 

2, The principle of Land Nationalizaticn is very clearly dsieussed by 
Gen. F. A. Walker in Chapter X of his Advanced Political Economy. 
Henry George's ideas are more briefly discussed in Walker's Ele- 
ments of Political Economy, Chapter XIX. 



50 

grade are free, but unoccupied because they do not furnish 
a living. They may be called waste lands. The sub-mar- 
ginal lands are frequently occupied for herding purposes, as 
was the case with a portion ot the Great American Desert 
before increase of population, irrigation and improved meth- 
ods of cultivation brought them into the agricultural state. 
On the other hand, in England, after the Black Death, 
A. D. 1348-51, when population was so diminished that labor 
became too expensive to employ on marginal farms and 
farms giving low rents, it became necessary to resort to 
sheep raising on these farms, as that industry required fewer 
laborers to the acre and brought good results for the money 
expended.^ 

Lands may be classified as follows: 

1. Rent Lands. 

2. Free. 

(a) Marginal Lands. 

(b) Sub- Marginal Lands. 

(c) Waste Lands. 

Wendell Phillips is said to have given the following 

statement of what rent should be. 

"Honest rent is the surplus left after the tenant has 

lived in comfort, material, intellectual, personal, and social 

comfort."^ 

Criticise this idea of rent from the standpoint of eco- 
nomical rights of man. ^ 

1 Industrial History of England. Gibbins.p. 46, also Cheyney's Industrial 
and Social History of England p 141-142. 

2 School Herald for 1881, p. 154. , 

3 Economic rights are discussed under free competition. 



51 
PRESUPPOSITIONS OF THEORY OF RENT. 

It is evident that, in order to compare different por- 
tions ot land as to their productivity, certain conditions 
must be observed. 

1. Land viust be kept at its normal conditioji of fertility , . 
Any loss by cultivation must be restored hy fertiliza-- 
Hon, In other words, the farms must not be allowed; 
CO run down. This is usually provided for in all farm 
leasing and is simple iustice to both parties. 

2. Equal expenditu-ye for labor and capital per acre is 

also necessary it we are to make a just comparison of 
farms. 

3. The point of diminishing returns must have been practic- 
ally ?eachedm the plan of cultivation of each farm, else 
the apparent fertility may be increased by an increase 
of labor or capital on one and will be impossible on the 
other. 

4. Perfect competition is understood in rent as in most 
economic theories. ^ 

The following tabular statement of fruitfulness of corn 
lands in the United States may prove interesting in connec- 
tion with the subject of Rent: 

Washington, Nov. 10. 1902. — The preliminary estimate 
of the average yield per acre of corn, as published in the 
monthly report of the statistician of the department of agri- 
culture, is 26 8 bushels, as compared with an average yield 
of 16.7 bushels in 1901, 25.3 bushels in 1900, and 1899 ^^.d 
a ten year average of 23.4 bushels. 

1. Read Walker's Advanced Political Economy p. 196 and Ricardo's. 
Political Economy (Conner's edition) p. 48 'i 26. 



52 

The following table shows for all states having i,ooo,- 
ooo acres or upward in corn, the preliminary estimates of 

average yield per acre in bushels in 1902, with the final es- 
timates for 1 90 1 and 1900 aud the mean of averages of the 
last ten years: 

1902 1901 

Illinois 38.7 21.4 

Iowa 32 o 25.0 

Kansas 30.4 7.8 

Nebraska 32.0 14. i 

Missouri 39 o 10. i 

Texas 8.1 11.6 

Indiana 38.9 19.8 

Georgia . 90 10.0 

Tennessee 21.0 14.2 

Kentucky 27.0 15,6 

Ohio 38.0 21.1 

Alabama 84 10.9 

North Carolina 14.0 12.0 

Arkansas 20.9 8.1 

Mississippi 11. 5 10.9 

Virginia 21.6 22.2 

South Carolina 10.7 6.9 

South Dakota 17.5 21.0 

Oklahoma 25.8 73 

Wisconsin 28.2 27 4 

Pennsylvania 33.8 35.0 

Minnesota 23 2 26.3 

Louisiana . . 12.5 13.7 

Michigan 26 i 34 5 

Average 26.8 16.7 25.3 23.4 





10 yr 


1900 


av'g. 


37-0 


31-3 


38.0 


30.6 


19.0 


20.0 


26.0 


23 


28.0 


25-4 


18 


18.5 


38,0 


305 


10.0 


10.6 


20.0 


20.7 


26.0 


24 6 


37 ^ 


31-8 


II. 


12.9 


12.0 


12.6 


19.0 


17-3 


II. 


14.4 


16.0 


19.0 


7.0 


91 


27.0 


21.3 


26.0 




40.0 


31 2 


25.0 


31-7 


330 


29.2 


17.0 


16.4 


36.0 


30.8 



53 



QUOTATIONS FROM THE GRAIN MARKET. 

Let the students show by curves on cross-section paper, 
the rise and fall in prices of different kinds of grain. 



Opening 

Oct 

Dec 72M- % 

May 73^-74 

July 72M 

Oct 57J^ 

Nov 55^ 

Dec 51%- % 

May 43%- % 

July 43 

*Oct 28% 

tOct 30-X 

*Dec 28% 

tDec 31-31% 

May 32%-% 

July 

»01d. tNew. 



WHEAT 

Highest Lowest 



72% 
741^ 
72% 

CORN 
57=1^ 
55% 
51% 
43% 
43% 

OATS, 

29 

30% 

28% 
31% 
32% 



72% 
73M 
72% 

57K 
55% 
51% 
43J^ 
42% 



28% 
30% 
28% 
30% 
32 



Closing 

Oct 27 Oct 25 



71% 
72% 
74% 
72% 

57% 
55% 
51 %s 
43%8 
42% 



28% 
30% 
28% 
31% 
32%s 



71 
72}^ 
74 
72 

57^ 
56 

51% 
43% 

42% 

28% 
30% 
28% 
31% 
321.J 



Opening 

Oct 

Dec 72% % 

May 74%-% 

July 72% 

Oct 56J^ 

Nov 55% 

Dec 51%-% 

May 43)^ 

July 42%-% 

*Oct 

tOct 

*Dec 28% 

tDec 31 

May 32% 

*01d. tNew. 



WHEAT 

Highest Lowest 



Closing 

Oct 28 Oct 27 



73% 

75 

73 



CORN 

57 
56 

51% 
43% 

42% 

OATS 



28% 
31% 
32% 



72% 
74% 
72% 



56^ 

55% 
50% 

43% 
42% 



28% 
30% 
32 



71% 
73% 
75s 
73 



57 

55J^ 
51%s 
43% 
42% 



28% 
30% 
28% 
30% 
32% 



71% 
72% 
74% 
72% 



57% 
55% 
51% 
43% 
42% 



28% 
30% 
28% 
31% 
32% 



Opening 

Oct 

Dec 73^^ % 

May 74%-75 

July 733^ 

Oct 57 

Nov 55 

Dec 50% 51 

May 4.n%. % 

July 42% 

*Oct 285i 

tOct 31 

*Dec 28-^ 

tDec 30% 

May 32%. }i 



54 








WHEAT 




Closing 


Highest 


Lowest 


Oct 29 


Oct 28 


7S% 
73% 


72% 
74% 
72^ 


7\\ 
72% , 
74% 
72% 


71?^ 
73M 
75 
73 


CORN 








57 
55 

51% 
431/ 

42% 


55% 
54K 
50% 
.43 
42J{ 


55^ 

54% 

50J{s 

43 

421^ 


57 
55% 
51% 
43% 

42% 


OATS 








28-% 


2^% 


28% 


28% 


31 

28-^ 
3(1% 
^2% 


29% 
28% 
30-% 
31?, 


29% 
28% 
30% 

•in 


30% 

28% 
30% 
32% 



Opening 

Oct 

Dec 72%- % 

May 74-74^ 

July 72% 

Oct 55% 

Nov 53% 

Dec 49%-50 

May 42%. % 

July 42-42% 

*Oct 

tOct 29% 

*Dec. 

tDec 30% 

May 31%- % 

*01d tNew 



WHEAT 

Highest Lowest 


LI 

Oct 30 


osing 

Oct 29 


72% 
74% 

72% 


72% 
74 

72% 


7\% 

72% 

74%s 

72% 


711^ 

72% 

74% 
72% 


CORN 








56 

54% 

43 

42K 


55 

53% 
49% 
42% 
42 


55% 
54% 
50% 
43 

42% 


55% 
54% 
50% 
43 

42% 


OATS 








29% 


29% 


28K 
29% 


28% 

29% 


30% 
31% 


3oii 

31% 


28% 
30% 

31% 


28% 
30% 
31% 



55 

WHEAT Closing 

Opening Highest Lowest Oct 31 Oct 30 

Oct 711^ 711^ 71^3 71M 711^ 

Dec 72%-ys 73 72% 72% 72% 

May 74%-% 74% 73% 74Ms 74%s 

July 72% 

CORN 

Oct 55| 55% 54% 55% 55% 

Nov 55% 55ii 53% 54^ 54% 

Dec 50%-51% 51% 50% 51% 50% 

May 43-43% 43^ 42% 42% 43 

July 421%-% 42% 42% 42% . 42% 

OATS 

*Oct 28 28^^ 

tOct 29% 29% 29% ' , 29% 29% 

*Dec 28}{ 28% 28 28% 28% 

tDec 30% 30% 30% 30^% 30%s 

May 31%-% 31%' 31% 31% 31% 



Opening 

Nov 70% 

Dec 71%-% 

May 73-73-% 



Nov 53% 

Dec 50%-% 

May 41%-% 

July 41 41% 



Nov 

*Dec 27% 

tDec 29%-% 

May 31-31% 



WHEAT 




Closing 


ighest 


Lowest 


Nov. 1 


Oct. 31 


70% 

71% 
73% 


70 

71% 
72% 


70% 

71%s 
73%s 


70% 

72%s 

73-%s 


CORN 








53% 
50% 
42 

41% 


52% 
49% 
41% 
40% 


52% 
50% 
41%s 
41s 


53% 
50% 
42 
41)^ 


OATS 








27% 
29% 

31% 


27% 
29% 
30% 


29% 
27% 
29% 
31s 


29% 
28% 
29% 
31% 



56 

WHEAT Closing 

Opening Highest Lowest Nov 5 Nov 3 

Nov 70K 70J^ 

Dec 71-%% 71% 70^/& 71)^ 71%8 

May 73%-% 73% 72% 73y,s 73% 

CORN 

Nov 53 ' 531^ 53 53!^ 52% 

Dec 51-51-% 51% 50% 51% 50% 

May 4ol%-4:2% 4.2%s 4iy, 42 41% 

July 41M- % 41% 41 41'^ 41 

OATS 

Nov 29y, 291^ 

*Dec 27% 27% 27% 27% 27% 

jDec 29%- % 29% 29'^ 29% 29% 

May 31 31% 30% 31 31 

July 30;^ 301^ 301^ 31 



WHEAT Closing 

Opening Highest Lowest Nov 6 Nov 5 

Nov 70K 70% 

Dec 71%-% 71% 71 71^ 71% 

May 73M- % 73% 72% 73^ 73% 

CORN 

Nov 53% 53% 52% 52% 53% 

Dec 51%- % 51% 50% 50%8 51% 

May 41%- % 42% 41% 41%s 42 

July 41% 41% 41% 41% 41% 

OATS 

Nov 29 29% 

*Dec 28 28% 28 28 27% 

tDec 29% % 30 29%b 29% 29% 

May 30% 31% 30% 31 31 

July 31 



57 
VOCABULARY OF ECONOMICS. 

Absolute Utility is utility in general, without regard to the 
quantity of the comodity, and it is measured by the 
importance of the want which is satisfied. See p. 7, 
Part II. 

Advantages of Division of Labor are many; the most promi- 
nent are: (i) The development of dexterity; (2) Sav- 
ing of time in apprenticeship; (3) Saving of time in 
changing work; (4) Encouragement of inventions; (5) 
Adaptation of labor to individual fitness. 

Agents of Production are land, labor and capital. Land and 
labor are the primary, essential agents; capital is the 
secondary agent. These agents are sometimes called 
factors of production. 

THE AGENTS OF PRODUCTION. 

AGENT SHARERS PORTION 

Primary fl Land Landlord Rent 

or {2 Labor [Labor WageEarner Wages 

Essential [ | Business Management Proprietor Profit 

[Government Protection Society Taxes 

Sec'nd'ry 3 Capital Capitalist Interest 

Autonomous or Independent Producers are those undertakers 
who do not hire help; they do not work for wages, 
but furnish their own| capital and sell their product 
hoping to make a profit. 

Bimetallism is a theory of money whereby both silver and 
gold are the basis of the system, and coins of full legal 
tender are made in each metal at a fixed ratio of value. 
—See Walker's Elements of Economics, pp. 11 7- 121. 

Capital \s wealth used for the production of more wealth. It 
is production goods. See fixed capital and circulating 
capital. 

Capital — Kinds of. There are two kinds of capital, viz: 
Fixed and ciiculating capital, q. v. 

Capital— 'L/QM of. Capital can be accumulated only by sav- 
ing. This law has been disputed and the statement 
made that capital is accumulated by surplus production, 
but if the surplus is not saved, abstained from, there 
will be no accumulation. 



58 

Captains of Industry are tbe men who have shown them- 
selves great organizers. and managers of business enter- 
prises. They may be and usuallj'- are independent pro- 
ducers, but they also, frequently, give their services to 
a great corporation, in which they are usually inter- 
ested, and receive a salary. 

*^ Competition is the (free) action of individual self-inter- 
est." Palgrave's Dictionarj' of Pol. Economy. 
Competition is the effort of individuals to produce and 
exchange goods on terms most advantageous to themselves 
(See Free Competition.) 

Consumers are those who use goods, and they are classified 
as Productive, (i) Giving material service; (2) Giv- 
ing personal service. Unproductive or dependent, 
(i) Defectives; (2) Parasites. (See definitions of each 
of these terms.) 

Circulating Capital is capital which is intended to be used 
but once, and in the using is either destroyed or chang- 
ed into some other form of capital, e. g. fuel, seed-corn, 
yarn. 

Civilization is the process of discovering new wants and 
means to satisfy them. "Material civilization consists 
largely in wanting many things and learning how to use 
them." — Ely's Outlines^p. 3. Moral civilization consists 
in perfecting the duties and enlarging the circle of 
brotherhood. — Id. p. 5. 

Consumption is the use of wealth; it is the destruction of 
utilities. The use of an automobile for a pleasure trip 
is an act of consumption. See final and productive 
consumption. 

Consumption Goods are those goods which are used for the 
enjoyment we have in the using; e. g., a pleasure boat, 
a boy's bicycle, a pair of skates. 

Credit is protracted exchange; it is a transfer of goods for a 
promised equivalent. 

Currency is the proper term for money in the popular use of 
the word. See § 17, Part I, 



59 

Defectives are unproductive consumers, who are physically 
or mentally unable to earn their own living; e. g., in- 
fants, insane, the very aged, etc. 

Deferred Payvients are those which are not required to be 
paid at the time of the exchange, but are postponed 
till some future time. 

Denionitizaiion is the discontinuance by government of the 
use of a coin and itsofl&cial withdrawal from circulation. 

Dependents are members of society who secure a living 
without production, by enjoying the fruits of other 
people's labor and giving no equivalent in exchange. 
Dependents are divided into defectives and parasites, q.v. 

Difficulties of Bai'ter are three: (i) Securing the double co- 
incidence of wants and. possessions; (2) Providing for 
change, (3) Finding a common denominator or measure 
of value. 

Diminishing Returns, the law of — In the cultivation of any 
tract of land a point is sure to be reached when the 
proportional returns of labor and capital begin to fall 
off. For further treatment and ways of postponing this 
point; read Walker's Elements, p. 55. 

Disadvantages of Division of Labor 2.xit numerous; among 
them are: (i) It makes men inefficient in other kinds 
of work than the one to which they are accustomed, 
.and unable to secure work if thrown out of their own 
occupation; (2) Under division of labor business be- 
comes complicated, liable to great derangement in case 
of strikes: (3) Division of labor has often resulted in 
giving to women and children work which was formerly 
done by men at full pay. Of course the wages of 
women and children are less and there is a distinct loss 
to the laboring class. 

Distribution is the division of wealth among those who had 
a share in producing it. 

Division of Labor is a system by which any industry is sep- 
arated into parts or processes, which are assigned to 
different workmen or groups of workmen. 



60 

Division of Occupations is the specializing of work by which 
men devote themselves to one phase of production, as 
work in leather, in wood or in stone, and exchange their 
products for money or goods of all sorts needed in their 
standard of living. Division of occupations results in 
the development of carpenters, masons, merchants, etc. 

Economic Goods are external goods which, because of their 
scarcity, command goods in exchange. 

Ecotiomic History is the story of the development of man in 
his want-satisfying activities, the story of man's discov- 
ery of new wants and how to satisfy them. 

Ecocomic History— stdiges of: (i) Hunting and fishing stage, 
illustrated by the life of the American Indians; (2) 
The herding, pastoral stage, illustrated by the life of 
Abraham; Isaac and Jacob and much of the oriental 
life; (3) The agricultural stage, illustrated by the 
farm life of the majority of the English people before 
the fourteenth century. (See Ashley's Economic His- 
tory, Vol. I, p, 5); (4) The manufacture and com- 
merce stage, including the home, gild and domestic 
periods of English life from 1450- 1769; (5) The 
industrial or factory period, characterized by the ap- 
plication of steam as a motive power and the massing 
of employees in great mills and factories. It began 
about 1769; (6) The trust stage, characterized by the 
combination of small concerns into great syndicates, 
and the attempt to establish vast monopolies. The 
industrial life in the Uoited States during the last 
quarter century, illustrates this stage. 

Econo)7iic Money must have a market value, as a commodity, 
equal to its face value as coin, and it must perform all 
the functions of money. See § 19, Part I. 

Economic Rights are those which belong to a man in connec- 
tion with satisfying his material wants, or getting a 
living. These rights are limited by the rights of other 
men and the good of society. 

Economic Wayits are those whose gratification commands a 
a price. "Economic wants are those which are satisfied 
by things which are objects of exchange."— -£'/)'' .y Out- 
lines, p. 120. 



«1 

Entrepreneurs are men who undertake to supply the needs 
of the public and sell their products with the hope of 
making a profit. They furnish the capital and may or 
may not hire laborers. They are also called undertakers 
and proprietors. 

Efficiency of Labor varies with the individual, and for the fol- 
lowing reasons: (i) Heredity; (2) Food; (3) Sani- 
itary surroundings; (4) Intelligence; (5) Hopefulness. 

Effective (Final or Marginal) titility is utility with special 
regard to the quantity of the commodity and the pres- 
ent needs of the individual. It is measured by the low- 
est want satisfied by the available goods. See pp. 7-9, 
Part II. 

j6";ir(;/zaw^^ is the double transfer of goods; it is the transfer 
of goods for a consideration; it is trade. 

Exte^mal Goods (objective goods) comprise all of man's en- 
vironment that has utility; e. g., houses, catile, air, sun- 
light, chemical afl&nity. 

Final Consianption is the use of goods for the satisfaction we 
find in using them; e. g. the eating of fruit, driving for 
pleasure. 

Fixed Capital is that kind of capital which is intended to be 
used more than once, as, machinery, railroad trains, 
and cattle. 

Forms of Capital are subsistence, tools, and materials. The 
Austrian school deny that subsistence is capital, claim- 
ing that it is not production goods, but consumption 
goods. 

Free Competition is such competition as is not subjected to 
any unfair restriction or interference. It is sometimes 
called perfect competition. See Obstacles to Free 
Competition. 

Free Goods are external goods which on account of thier 
abundance command no price. 

Inunctions of Money are: (i) Facilitating exchange; (2) 
Serving as a measure of values; (3) Affording a stand- 
ard for deferred payments; (4) Acting as a storage of 
values. 



62 

Goods comprise all things that have utility. 

Goods (Outline of) ; 

1. Internal 

2. Economic, 
(i) Free. 

(2) External. 

a. Potential Wealth. 

b. Actual Wealth. 
c Personal Service. 

Government Interference is restraint put upon competition by 
the state. Unfair interference is such as prevents men 
from enjoying all the economic rights to which they 
are entitled. 

Greshani' s Law— Bad money drives good money out of cir- 
culation, but good money cannot drive out bad money. 

History of Econofnics is the story of the development of the 
science of economics, and it includes a sketch of the 
theories of the various schools and leading writers on 
economics. 

Increasing Returns — The law of: In manufacturing, the in- 
crease of productiveness through more eflScient ma- 
chinery suggests an increasing return in proportion to 
the increase of capital. This law is however open to 
dispute. 

Interest is sometimes defined as the price which is paid for 
the use of capital. Many prominent writers of to day 
define interest as the excess of the value of present 
goods over that of future j^oods. Interest is the capi- 
talist's share of the product. 

Interest— "Lavj of. Interest is determined by the productiv- 
ity of capital in the hands of the marginal investor. 
See pp. 17-20, Part II. 

Interference— ^Q^ Government interference. 

Internal Goods (Subjective goods) comprise all desirable 
parts, faculties, conditions, and qualities of human 
beings. 



63 

Labor is human eflfort voluntarity put forth for the produc- 
tion of goods The primitive form of labor was the ap- 
propriation of natural goods, i. e. the act of appropria- 
tion.— Clark's Philosophy of Wealth, p. ):o. 

Laborers (Classified): Wage earners; Undertakers (or En- 
trepreneurs); Independent (Autonomous) producers; 
Employers. 

Land comprises all natural resources which can be used in 
production and includes materials and forces. 

LaSalle's Iron Law—Ws-g^s tend to fall to the level of that 
standard of living which just provides the necessities of 
life.— See p. 25, Part II 

Legal Tender is that which the law compels a creditor to 
receive in payment of debt. — § 18, Part I. 

Material Services comprise all vendible utilities resulting 
from labor and embodied in matter. 

Money is a medium of exchange and a measure of values. 
For more elaborate definition see § 13, Part I. 

Money — Conceptions of. (i) Popular; (2) Legal; (3) Eco- 
nomic. Read §§ 16-19, Part I. 

Monopolist (A monopoly?) is a person or combination of 
persons (public or private) which has and uses the 
power of control of the market with regard to any 
commodity . 

Monopoly is the exclusive control of the market with regard 
to any commodity. 

Monopoly Price — Law of. The monopolist is forced by self- 
interest to sell at that price whose excess above cost, 
multiplied by the demand, gives the largest profit. 
See pp. 37-39, Part II. 

Monopoly Profits are measured by the excess of monopoly 
price over competitive market price. See p. 40, Part II. 

Malthusian Doctrine — Dr. Malthus, an EngUsh clergyman, 
about the close of the XVIII Century wrote a book 
claiming that population increased in geometric ratio 
while food increased only in arithmetic ratio. Therefore 
it was only a question of time when the world would be 
unable to sustain its population and men must starve. 



64 

Necessa-ty Profits, sometimes called wages of superintendence, 
are the mmimum of profits that an entrepreneur will 
consider as an inducement to continue independent pro- 
duction. They are considered a part of the cost produc- 
tion. 

Nominal Wages are wages expressed in money and vary with 
the purchasing power of money. 

Normal Value is determined by the cost of production of that 
part of the needed supply produced at the greatest dis- 
advantage. See pages 3 and 4, Part II. 

Obstacles to Perfect Covipetition. ( i) Unjust government in- 
terference; (2) Combinations of employers; (3) Com- 
binations of employees; (4) Timidity; (5) Ignorance; 
(5) Custom; (7) Sentiment. 

Occupations are ways of getting a living. Productive occu- 
pations are those in which men produce the goods they 
enjoy, or their equivalents which they exchange for 
those they wish to enjo5\ Unproductive occupations 
are those in which men do not produce the equivalent 
of what they enjoy, but secure part or all of their util- 
ities at the expense of others. 

Occupations are also classified as: (i) Extraction, (2) Trans- 
portation, (3) Transformation, (4) Transfer or Trade, 
and (5) Personal Service. 

Parasites are unproductive consumers who are able to earn 
their own living, but prefer to secure goods through the 
labor of others without giving an equivalent, e. g. 
theives, gamblers, tramps. 

Pet sonal Services aoxxv^xx^^ all vendible but apparently imma- 
terial utilities resulting from labor. 

Personal Service, considered as an occupation, is the render- 
ing of those utilities which are apparently immaterial 
and seem to be embodied in the purchaser, e. g. the oc- 
cupation of a teacher, singer, barber, etc. 

Potential Utility is the unrealized but possible utility exist- 
ing in things which are not wanted but liable to come 
into demand by a change in the attitude of consumers. 



65 

Potential Wealth comprises all unappropriated economic 
goods. Most objects in nature are potential wealth. 
See Smart in Preface to Positive Theory of Capital. 

Principle touching' the relation of fixed and circulating cap- 
ital. The safety and prosperity of commerce demand 
that too much existing wealth be not turned into fixed 
capital, lest there be not suflScient circulating capital to 
give employment to the fixed capital. A violation of 
this principle frequently results in financial crises. 

Production is the development of utility. 

Production goods are goods used to aid directly in the pro- 
duction of more goods. 

Productive Consumption is the use of goods to produce more 
good: e. g. the use of a horse and wagon to deliver gro- 
ceries, — of tools to build a house. 

Profits is that part of the product which goes to the under- 
taker (entrepreneur) on account of his business ability. 
Profits is the undertaker's share of the product. 

Profits— I^SlW of. Profits are determined |Dy the excess of 
any undertaker's productivity over that of the marginal 
undertaker. See Necessary Profits. 

Pure Profits are measured by the excess of market price over 
cost, under conditions of free competition. 

Real Wages are wages reckoned in the commodities to be 
bought with wages. See p. 28, Part II. 

Rent is that part of the product which goes to the landlord, 
on account of the productiveness of the soil. It has 
been defined as what is paid for the use of the soil. It 
may also be defined as the landlord's share of the pro- 
duct. 

Rent — Law of. Rent is determined by the excess of produc- 
tivity of any land over that of the marginal land. See 
p. 44, Part II. 

Representative Wealth is proof, sign, or evidence of ownership 
in real wealth— e. g. deeds, mortgages, promissory 
notes, paper money, etc. Strictly .-^peaking it is hardly 
to be considered as wealth, but simply as representative 
of wealth. See Ely's Outlines p. 106. 



66 

Sej'vices are utilities resulting from labor, Material services 
are utilities embodied in material torm, and Personal 
Services are vendible but apparently immaterial utilities 
resulting from labor. 

Smgle Tax— Yienry George's plan "to obtain all public 
revenue, national and local, by taking, as nearly as 
may be all the rental value of natural opportunities, 
without regard to improvements." Palgraves Diction- 
ary of Political Economy. A plan to secure all the pub- 
lic revenue by seizing all che economic rent of farm and 
urban land. 

Socialism, is a plan of industrial and political organization, 
b}^ which all capital goods are owned and hianaged by 
society through government. 

Standard of Living \% the minimum, in number and charac- 
ter, of the wants which a man insists on having satis- 
~ fied. Mr. El)^ says "The number and character of the 
wants which a man considers more important than mar- 
riage and family constitutes his standard of living." 
Outlines of Economics, p. i8i. 

Tabular Standard for Deferred Payments is a schedule of 
prices of all leading commodities recorded from day to 
day and affording a criterion of the purchasing power 
of money, and therefore a just basis for the settlement 
of deferred payments. See p. ii, Part I. 

Transfer or Trade is the business of buying and selling goods, 
e. g. the grocery business, the clothing business, etc. 

transformation is changing the form or arrangement of 
goods in such a way as to add to their utility or value, 
e. g. all forms of manutacture, sculpture, painting. 

Transportation is changing the location of goods in such a 
way as to give them additional utility or value, e. g. 
rail-roading, the express or dray business. 

Unearned Increment is that increase in the value of any thing 
subject to a natural monopoly which is due, not to the 
expenditure of labor or skill by the proprietor, but to 
the general progress of society resulting in an increased 
demand for that thing. 

L.ofC. 



67 

Utility is the powex to satisfy a human want. It is a rela- 
tion between the thing and man, and varies with the 
wants of man and the nature of things. 

Undertakers — See Entrepreneurs. 

Value is power in exchange; it is purchasing power, "^ore 
technically it inay be defined as the measure of effective 
utility. Value is determined (Austrian View) by the 
effective utility to the marginal consumer or purchaser. 
See pp. 9 and lo, Part II. 

Wages is that part of the product which goes to the laborer. 
It is the laborer's share of the product. Wages (strictly 
speaking) is the fixed amount guaranteed to the laborer 
by the employer in return for services performed. 

Wages— 'L^iVQ o{. (English Standpoint), i. Wages are de- 
termined by the standard of living of the marginal 
laborers. See p. 26, Part II. 2. (Austrian Stand- 
point). Wages are determined by the productivity of 
labor in the hands of the marginal employer. See pp. 
22 23, Part II. 

Wages of Siiperintendence — See Necessary profits. 

Wage Earners are laborers who are employed at definite wages 
or salaries. They haveno capital invested in the business, 
except occasionally certain simple tools which they 
use in their work, e. g. the laborer's shovel and pick. 

Wage Fund Theory — A certain portion of capital is set aside 
for the payment of wages. The average wage is found 
by dividing this wage fund by the number of laborers. 
Wages can be increased only bj' decreasing the number 
of laborers. See p. 27, Part II. 

Wants of Man are classified from the standpoint of their im- 
portance, as: wants calling for (i) Necessities, (2) Com- 
forts, (3) Luxuries. From the standpoint of their ori- 
gin wants are classified as. Physical, Intellectual, Moral, 
Spiritual, Social, and Aesthetic. 

Wealth comprises all material, economic goods, which have 
been appropriated by man. 

Wealth is Divided According to its Use into consumotion 
goods and production goods, q. v. 



STUDIES AND EXERCISES IN ECONOMICS. 

N. B. — The following outline presents a plan of study 
by lectures, conversation, and reference books. The Vocab- 
ulary of Economics, (Part II, pp. 57-67) will be found helpful 
in this connection. The author hopes, in the near future, to 
offer another pamphlet based on this outline, and covering 
the topics not discussed in this little book. 

PRELIMINARY AND HISTORICAL. 
I. 

1. Definitions of Economics. 

2. Four departments with definitions and illustrations. 

3. Final and productive consumption. 

II. 

4. Occupations. 

5. Getting and making a living. 

6. Fifty ways classified as getting or making a living. 

7. Productive and unproductive occupations. 

8. Consumers classified as productive or dependent. 

9. Defectives and parasites. 

10. Five kinds of occupations — Extraction, Transporta- 
tion, Transfer or Trade, and Service. 

III. 

11. The wants of man classified — As to importance. 

12. As to origin and nature. 

13. Quantity and quality; high grade and low grade of 
living. 

14. Standard of living. 

15. Distinguishing characteristic of man from economic 
standpoint. 

16. Civilization defined — material and moral civilization. 



69 
IV. 

17- Kconomic History, Nature, Stages. 

i8. Hunting and fishing stage. 

19. Pastoral stage. 

20. Agricultural stage. 

21. Manufacturing and commerce stage. 

22. Industrial stage. 

23. Trust stage. 

24. Outline. 

V. 

25. Competition — a characteristic of economic lite. 

26. Free and restrained competition. Unfair interference. 

27. Economic rights. Test of all human rights. 

28. Obstacles to free competition. 

29. Conservative, cut-throat and latent competition. 

30. Relation to economic history. 

FUNDAMENTAL DEFINITIONS. 
VI. 

31. Utility defined — a quality or relation? Two terms. 

32. Individual and social utility. Two ways of devel- 

oping utility. 

33. Four kinds of utility and classification of occupations 

on this basis. 

VII. 

34. Goods. 

35. Internal and external. 

36. Free and economic. 

37. Material and apparently immaterial. 

38. Wealth and personal services. 

39. Representative goods. 

VIII. 

40. Wealth defined. 

41. Essential characteristics. 

42. Wealth and value. 

43. Value and utility. 

44. Ancient and modern terms. 

45. Wealth classified according to use. 



70 
PRODUCTION. 

IX. 

46. Production defined. 

47. Two ways of developing utility. 

48. Agents of production. 

49. Primary and secondary. 

50. Further division. 

51. The sharers of production arid their portions. 

X. 

52. Land defined. 

53. Two forms of land. 

54. Land constant in quantity. 

55. Varied in quality, 

56. The share falling to the landlord. 

57. The law of diminishing returns. 

58. Ways of postponing the point of diminishing re- 

turns. 

59. Relation of this law to population. 

60. Relation to agriculture. 

61. To manufactures. 

62. The law of increasing returns.' 

XL 

63. The Malthusian doctrine. 

64. The other side. 

65. Rate of increase. 

66. Birth rate and death rate. 

67. Natural increase and immigration. 

68. Possibilities of a decrease instead of an increase. 

XII. 

69. Labor defined— an es.sential factor in production. 

70. Primitive form. 

71. Material results. 

72. Apparently immaterial results. 

XIII 

73. Classes of Laborers. 

74. Wage earners. 

75. Undertakers. 



71 

yb. Independent producers and employers. 

77. Illustrations from history. 

78. Wages. Necessary profits and pure profits. 

XIV. 

79- Division of labor. 

80. Division of occupation and organization of labor. 

81. Captains of industry. 

82. Five advantages of divisions of labor, 

83. Some disadvantages. 

XV. 

84. Efficiency of labor. 

85. Causes of difference. 

86. Illnstrations of the same. 

87. Lessons for employers. 

XVI. 

88. Capital defined. 

89. Identity with production of goods. 

90. Relation to wealth. 

91. Forms of capital. 

92. Modern view. 

93. Is .^ubsistence capital? 

94. Kinds of capital. 

95. Illustrations. 

96. Principle touching relation of. 

97. The law of capital. 

98. Discussion of the same. 

XVII. 

99. Discussion of the function of capital in production. 
100. Illustrations of its helpfulness. 

EXCHANGE. 

XVIII. 
loi. Exchange defined. 

102. Three instruments. 

103. Difficulties of barter. 

104. Money, origin and kinds. 

105. Credit, kinds. 



FEB 13 1903 



72 

XIX. 

io6. Money, its essential characteristics. 

107. Intrinsic (?) value. 

108. Indestructibility. 

109. Divisibility. 

no. Convenience of bulk. 

111. Steadinesss of value. 

XX. 

112. Functions of money. 

113. Definition. 

114. Deferred payments. 

115. Tabular standard. 

XXI. 

116. Three conceptions of money. 

117. Currency. 

118. Le^al tender. 

119. Economic money. 

XXII. 

120. Coin mone3^, kinds. 

121. Bimetallism. 

122. Gresham's law. 

123. History of coinage. 

124. Table and questions. 

XXIII. 

125. Paper money, advantages of. 

126. History. 

127. Table and questions. 

XXIV. 

128. The central theme ot exchange. 

129. English view. 

130. Austrian. 



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